You are provided with the following historical financial information based on 30 June 2021 financial statements...

       

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You are provided with the following historical financial information based on 30 June 2021 financial statements of ABC Company: • Gross profit: $8,000,000 • Gross profit margin: 70% • Operating income margin: 6% • Net income margin (before tax): 3% • Corporate tax rate: 30% • Debtor collection period: 30 days • Creditor payment period: 60 days • Stock turnover days: 90 days ABC Company also provides you with the following budget information for the period 1 July 2021 to 30 June 2022: • Sales: $15,000,000 Opening stock 1 July 2021: $800,000 Closing stock 30 June 2022: $500,000 • • Cost of sales: $4,500,000 • Operational expenses: $ 8,000,000 • Debtor collection: 30 days = 50% and 60 days = 50% • Creditor payment: 30 days = 25%, 60 days = 25%, and 90 days = 50%. a. Complete the income statement of ABC Company. Show your workings. (5 marks) Income Statement for the year ended 30 June 2021 Sales Cost of goods sold Gross profit Operating expense Operating income Interest payment Net income before tax Tax Net income after tax b. Use the information above to complete the table and comment on the realism of the budgeted figures of ABC Company by considering the historical fionres and the fact that the business is operating in a very competitive market. Sales Cost of sales Operational expenses Stock turnover period Debt collection period Historical figure Budgeted figure Comments with reasons Answer the following questions regarding to analysing loan portfolio information, show your workings for the calculation: a. Use the following information to establish how much Bank A's loan portfolio deviates from the national average: (2 marks) C. Consumer loans Overdrafts 25% 15% 20% 40% 100% b. Assume the standard deviation calculated in part a. of this question for Bank A is very large compared to the standard deviation of other banks. Is it necessarily bad for Bank A? (2 marks) Bank A Business loans Mortgage National Ave. 45% 5% 20% 30% 100% A sample of 2,000 customers of similar size and activity have been observed. On average 30 have defaulted on their obligations per year and only 35% of the outstanding debt could be recovered. The average exposure per customer is $55,000. Use the ACRA principle and calculate the total expected loss and the "credit risk premium" per customer. (2 marks) A bank has a basket of five-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments are conducted semi-annually (twice per year) but the total principals of the loans are due at the end of the fifth year. a. The bank is willing to sell these loans without recourse at an interest rate of 3.5 percent. What price should it receive for these loans? (2 marks) Another bank is willing to purchase the loans with recourse at a yield of 3.4 percent per annum. According to the management information system of the selling bank there is a 1.5% probability of default on these loans and 80% of the loans could be recovered upon default due to the security (collateral) that the bank holds. Is it better to sell the loans with or without recourse? (3 marks) b. Question 1 (5 marks) a. Briefly describe each of the following general credit risks pertaining to consumers that banks have to consider and provide examples for each of these risks: i. Guarantees furnished by consumers. (1 mark) 11. The effect of a borrower's age, death or disability on a loan. (1 mark) 111. Future income. (1 mark) b. Briefly describe each of the following specific credit risks pertaining to partnership that banks have to consider and provide examples for each of these risks: i. 11. Financial statements. (1 mark) Continuity. (1 mark) Question 2 (8 marks) You are provided with the following information about a business: a. The sale of the business has increased over the past financial year; b. The gross profit of the business has decreased; c. The payment periods for accounts receivable and accounts payable have increased; d. The amount values of inventory and cash have declined, and at the same time the bank borrowing has increased substantially. Consider the possibility of overtrading. Provide possible reasons for each of the above mentioned changes in the financial figures and conclude your answer by indicating whether each of the above mentioned changes should be regarded as good or bad Question 4 (6 marks) Briefly describe each of the following macro environments and their impacts on the survival of a business that banks have to consider, and provide examples for how each of these environments impact businesses: a Economic environment (2 marks) b. The international environment (2 marks) c. Physical environment (2 marks) Question 5 (6 marks) Briefly explain the different alternative actions that a banker should consider when an account becomes problematic. Provide examples of situations where these actions may be applicable. You are provided with the following historical financial information based on 30 June 2021 financial statements of ABC Company: • Gross profit: $8,000,000 • Gross profit margin: 70% • Operating income margin: 6% • Net income margin (before tax): 3% • Corporate tax rate: 30% • Debtor collection period: 30 days • Creditor payment period: 60 days • Stock turnover days: 90 days ABC Company also provides you with the following budget information for the period 1 July 2021 to 30 June 2022: • Sales: $15,000,000 Opening stock 1 July 2021: $800,000 Closing stock 30 June 2022: $500,000 • • Cost of sales: $4,500,000 • Operational expenses: $ 8,000,000 • Debtor collection: 30 days = 50% and 60 days = 50% • Creditor payment: 30 days = 25%, 60 days = 25%, and 90 days = 50%. a. Complete the income statement of ABC Company. Show your workings. (5 marks) Income Statement for the year ended 30 June 2021 Sales Cost of goods sold Gross profit Operating expense Operating income Interest payment Net income before tax Tax Net income after tax b. Use the information above to complete the table and comment on the realism of the budgeted figures of ABC Company by considering the historical fionres and the fact that the business is operating in a very competitive market. Sales Cost of sales Operational expenses Stock turnover period Debt collection period Historical figure Budgeted figure Comments with reasons Answer the following questions regarding to analysing loan portfolio information, show your workings for the calculation: a. Use the following information to establish how much Bank A's loan portfolio deviates from the national average: (2 marks) C. Consumer loans Overdrafts 25% 15% 20% 40% 100% b. Assume the standard deviation calculated in part a. of this question for Bank A is very large compared to the standard deviation of other banks. Is it necessarily bad for Bank A? (2 marks) Bank A Business loans Mortgage National Ave. 45% 5% 20% 30% 100% A sample of 2,000 customers of similar size and activity have been observed. On average 30 have defaulted on their obligations per year and only 35% of the outstanding debt could be recovered. The average exposure per customer is $55,000. Use the ACRA principle and calculate the total expected loss and the "credit risk premium" per customer. (2 marks) A bank has a basket of five-year loans with a value of $ 5 million that pay annual interest of $200,000 per annum. Interest payments are conducted semi-annually (twice per year) but the total principals of the loans are due at the end of the fifth year. a. The bank is willing to sell these loans without recourse at an interest rate of 3.5 percent. What price should it receive for these loans? (2 marks) Another bank is willing to purchase the loans with recourse at a yield of 3.4 percent per annum. According to the management information system of the selling bank there is a 1.5% probability of default on these loans and 80% of the loans could be recovered upon default due to the security (collateral) that the bank holds. Is it better to sell the loans with or without recourse? (3 marks) b. Question 1 (5 marks) a. Briefly describe each of the following general credit risks pertaining to consumers that banks have to consider and provide examples for each of these risks: i. Guarantees furnished by consumers. (1 mark) 11. The effect of a borrower's age, death or disability on a loan. (1 mark) 111. Future income. (1 mark) b. Briefly describe each of the following specific credit risks pertaining to partnership that banks have to consider and provide examples for each of these risks: i. 11. Financial statements. (1 mark) Continuity. (1 mark) Question 2 (8 marks) You are provided with the following information about a business: a. The sale of the business has increased over the past financial year; b. The gross profit of the business has decreased; c. The payment periods for accounts receivable and accounts payable have increased; d. The amount values of inventory and cash have declined, and at the same time the bank borrowing has increased substantially. Consider the possibility of overtrading. Provide possible reasons for each of the above mentioned changes in the financial figures and conclude your answer by indicating whether each of the above mentioned changes should be regarded as good or bad Question 4 (6 marks) Briefly describe each of the following macro environments and their impacts on the survival of a business that banks have to consider, and provide examples for how each of these environments impact businesses: a Economic environment (2 marks) b. The international environment (2 marks) c. Physical environment (2 marks) Question 5 (6 marks) Briefly explain the different alternative actions that a banker should consider when an account becomes problematic. Provide examples of situations where these actions may be applicable.

Answer rating: 100% (QA)

Answer Part 1 of the question a complete income statement Complete income statement b Budgeted figure comparison Item Historical figure Budgeted figure Comments Sales 15000000 15000000 Budgeted sales ... View the full answer