University of Bahrain

Department of Economics & Finance

BANK 311
DRUTHERS FORMING LIMITED
Prepared by:
MARYAH FAISAL MAHDI JUMA 202008325
FATEMA ABBAS SAYED ABDULLA HASHIM 202005378
NADA MOHAMED BASHAR ALROWAIEI 20192895
HUDA MOHAMED ALI FATEEL 20192895
AHMED KHALIFA MOHAMED BUHAZZAA 20197613
ZAMZAM MOHAMED GHULOOM ALAWADI 202004611
 EXCUCTIVE SUMMERY

1-Assess past financial performance using the statement of cash flows and ratio analysis.
2- Analyze the risk associated with the loan using the Five Cs of Credit.
3-Determine the loan amount needed and decide on the type and term of the loan.
4- Evaluate several options (deny the loan, grant the request, defer the request) available to
the lender to determine which option is the best for this decision.
5-As MacDougall, decide whether to lend funds and provide supporting rationale for this
decision.
 PART ONE

Net income:
In 2007, the company has net loss of $ -12,100. This mean that
the company made a loss, which is bad for us as a lender to give
them loan that worth $350,000.
 PART ONE

Liquidity:
Current ratio:2007: 3.14: 1
The current ratio is good (the company can easily pay the loan), because this
mean that the company have more than 3 times the current assets are to the
company’s current liabilities. But there is negative point, it will affect the
companies interests, and thus will affect the income statement at a future
stage.
 PART ONE

Liquidity:
The quick ratio shows that:
The company has enough liquid assets to pay its current liabilities, the quick
ratio is not much less than the current ratio, so it doesn’t highly dependent on
the inventory. This is good for the lender to offer loan to the company.
 PART ONE

Cash ratio:
The cash ratio for 2007 is 1.38: 1
This mean that the company are managing their cash will,
and they will have enough funds to pay the loan in the
future.
 PART ONE

Working capital:
• The working capital has decreased significantly compared to previous years.
• The financial position of the company is deteriorating and will continue to do,
until the company improves their working capital.
• Working capital can be improved through: accounts receivable, inventory,
and/or accounts payable.
 PART ONE

Efficiency:
The company should take less time to collect their receivables.
Days to sell inventory:
The company almost has good days to the sale of inventory number, because
many experts agree that a good day to sell inventory is somewhere between 30
and 60 days, so the company is in a good position.
 PART ONE

Age of payables:
In 2007, the ability of the company to pay its suppliers is once every 57 days.
However, taking a too long time to pay creditors may result in unsatisfied with its
creditors.
If the age of payable is high, it means that the company having difficulty finding
the cash to pay its payables. Also, it may lead to the inability to pay its payable
on time. So, no one will prefer to sell to this company on credit.
 PART ONE

Capital structure and solvency

Total debt to equity:

In 2007, the company has $423,504 in their total assets, and $302,115 in their
total equity, which equal to 28.6%.We cannot consider this ratio as bad ratio, but
it would be better if it is higher than 30%
 PART ONE
Statement of cash flows:
Net cash flow from Net cash flow from Net cash flow from investing Net cash flow:
operations: financing activities: activities:

2006: $(4000) 2006: $69,204 2006: $(68,204) 2006: $(42,590)

2007: $129,390 2007: $(15,212) 2007: $(107,794) 2007: $45,974

The net cash flow In 2007, the The company has The net cash flow is
from operating company has a negative net cash flow increasing, and this
activities is negative cash flow from investing means that the
increasing. from financing activities. company has more
activities. inflows than its
outflows.
 PART TWO

Character Capacity Capital Collateral Condition

Revenues have
accounts for
dropped Land and Consider the Natural resource
between 30% and
dramatically over construction in building as a factors - economic
70% of their sales-
company continual
the last three progress. collateral . conditions and
ended up paying years- current competition.
their creditors ratio for 2007 is
before receiving 3.14. This is a
any money from superb ratio -the
the clients. - acid test ratio for
paying their bills 2007 is 3.01
at a regular rate. times.
 PART THREE
DETERMINE THE LOAN AMOUNT NEEDED
DRUTHERS FORMING LIMITED is seeking to take 350,000 on long
term financing to create a new facility.
The project expected completion date for development is 30,Sep,2007.-If
accept this loan the interest payment estimate to be about 20,3000 for the
first two year.
The yearly principle payment of 30,000 for each fiscal years 2008 and
2009.
 PART THREE
DECIDED THE TYPE AND TERM OF THE LOAN
 The loan will be long-term ranging between 2-3years ,and this time is sufficient
to pay off the loan at a fixed interest rate.
 The type of loan will be term loan in which the repayment will be made (monthly
or quarterly).
 PART FOUR
To evaluate the company request we must analyze the historical data by using the statement of
cash flow and ratio analysis.
Statement of cash flow :
Net cash flow is only $45974 with addition of beginning cash and ending cash is only $118,550
Ratio’s analysis :
1- the current ratio for 2007 is 3.14 : 1
2- acid test ratio for 2007 is 3.01 : 1
3- cash ratio for 2007 is 1.38 : 1
 PART FOUR
Ratio’s analysis :
1- the current ratio for 2007 is 3.14 : 1
2- acid test ratio for 2007 is 3.01 : 1
3- cash ratio for 2007 is 1.38 : 1
 PART FIVE
APPROVAL TO GIVE THE COMPANY A LOAN WITH SOME CONDITIONS

As stated in the question , three choices could be taken ( deny the loan , grant the request ,
default the request ) Deny the request , it had noticed that it had a loss during the year
2007 and lack of its liquidity ( cash flow ) Grant the request , take the buildings as
collateral in the situation of failure of the loan payment , the company always success in
the long-term payment loan and the company always ending up paying their creditors
Defer the request , by dividing the loan amount to two portions first portion $150,000
within 4 to 5 years and $200,000 within 4 to 5 years .
Thank You