You are required to conduct an analysis of specific financial data of Bob Smith, Inc. Bob is an existing bank customer. When the loan to Bob was originally made in $2016,$ the bank required Bob to increase the YE $2016$ cash balance to at least $$70,000$ to qualify for the interest rate that the bank used for the original loan. This cash balance was required for the bank to make its target yield on the loan created. The Cash Flow Statement and Balance Sheet show an actual YE $2017$ cash balance of less than $$34,000.$

You will need to complete the $2017$ Cash Flow Statement. In addition, you will also prepare the $$Common Sized Financial Statements$$ for the $2$ years shown.

This information allows you to substantiate the $2018$ loan denial or renewal request. You are acting as the loan committee of the bank and you will address an internal memo to the loan officer in charge of this loan facility giving the committee$$s decision on whether to approve the loan as is$,$ renew the loan with modifications, or deny the loan request. Be sure you move away from definitions to analysis. Additionally, you do not need to give definitions of balance sheet accounts.

The Balance Sheets and Cash Flow Statements provided in the data worksheet below will assist you in your analysis. From these documents, and from the ones you produced, discuss the following:

The covenants within the CC&Rs that the company did not comply with.

The Common Sized Financial Statement $($CC&Rs$)$

The Cash Flow Statement

What did management do to fall short of the minimum cash requirements?

Was the company$$s failure to meet cash balance requirements a result of the company being unable to meet the requirement or because of management actions?

What could be managements motivation for not complying with the loans CC&Rs$?$

Where was the major portion of the company$$s working capital used?

What could management have done to comply with the CC&Rs they agreed to$?$

Finally, what does your loan committee want to do about the renewal of this loan? In this area, you can:

Renew the loan without changing the loan conditions.

Renew the loan and modify the conditions to what is now required by the bank to receive loan approval.

Decline the loan.

Remember that banks approve or deny loans based on the $5$ Cs of credit, which are:

Character

Capacity

Capital

Collateral

Conditions

Consider these when deliberating what to do with this loan and include an overview of this discussion in the memo to the company$$s loan officer.

In your memo:

Include a strong thesis statement, introduction, and conclusion. The main points of the response should be developed and explained clearly in the memo with appropriate financial and accounting terminology.

Support all arguments $($no errors in logic$)$ based upon the Statement of Cash Flows data.

Exhibit strong higher$-$order critical thinking and include appropriate judgments, conclusions, and assessments based on the team$$s analysis of the Balance Sheet and Statement of Cash Flows.

Provide proper classifications, explanations, comparisons, and inferences based on the cash flow representations. Your submission should include recognition of accounts, and the team$$s work should be reconciled back to the financial data provided.

Prepare this part of the assessment in a memo format, in a minimum of two single$-$spaced pages, and using size $12-$point font. Name the file as: MT$480$ Loan Committee Memo Team X$.$ You must also submit the cash flow statement, and the common sized financial statement.

Your loan decision should be supported by your financial statement analysis.

Access the CC&Rs

Access the data worksheet

Checklist:

In a Microsoft$$ Word$$ document address the following as if you were a member of a team $($although you alone are responsible for the deliverables$)$ based on the scenario provided above:

$-$Provide the goals, resources, and timelines for the team project.

$-$Explain the communication protocol for team members.

$-$Explain how you resolved the problems

Complete the memo; a minimum of $3-4$ single$-$spaced pages, using $12-$point font. As the loan officer, you must pass along the news in a business memo that is professional and written in an objective manner. Please use values in the memo whenever possible.

Access the data worksheet below and complete it$.$

Using analysis of the data sheet, explain in your letter why you are approving the loan as is$,$ renewing the loan with modifications, or denying the loan request: