2:26 21 al 83% FM ASSIGNMENT - Read-only ... Read Only - You can't save changes to this file. ASSIGNMENT (15 MARKS) Lecturer : Puan Azizah Md Nor 012-2132122 You are the Vice President of Corporate Credit Department at CIMB Bank. Your main responsibility is to review applications for loans. You are at present reviewing a short term loan applicatie of RM1million by the Lion Tools Corporation (LTC) LTC manufactures various types of high quality punching and deep drawing press tools for kitchen appliance manufacturers CASE CONTEXT LTC has been into the market for 2 years and has recently gone through the initial public offering (IPO) process and has become a public company. LTC has an annual sale of RM45 million in year 2016 LTC makes unique tools for kitchen appliances. For the past 2 years LTC has spent so much on the RED LTC's 2-years performance revealed challenges in terms of Account Receivables collection. Within this year period. LTC availed loans from HL.BR and Agro Bank. Though Mr Fauzie Fae has proven himself to be very likeable and persistent person, the company's 2-year performance poses a challenge for lum and for LTC to avail the MSM from CIMB You as the VP of the Credit and Corporate Loan is in dilemma now ce whether to approve the LTC'S request for the short term loan given the information he got from asking the other 2 bunks who handled LTC's as LTC has a good working relationship with the other two banks. Both Banks have praises for the company and its determined manager. However, willing to increase LTC sborrowing limit based on their average leveraged position LTC land experienced extraordinary growth, fueled by heavy spending a research and development and a rapid expansion of its salesforce. Its technical staff was very well regarded at developing new products with a wide range of applications. The combination of state-of-the-art products and a rapidly expanding market resulted in sales growth of 10% per year. Mr. Faurie believed that industry sales would continue to grow at this rate and that any failure to maintain LTC's market position would be damaging in terms of competitive position and internal morale. Sales volume, which had grown coatimously from the star, was always large in relation to the wailable capital. The situation was exacerbated by large operating losses as LTC fedew markets aggressively Management met the financing pressures by heavy reliance on short-term credit With the two-year financial statements, you will have to assess the viability of appeaving LTC's loan request The case will be analyzed using your perspective. Also, it will be assumed that LTC is a start-up company and this is the main reason why LTC relied heavily on short term loans to finance their initiatives for growth Mr Fauzie Farm, the financial manager of LTC, has submitted a justification to support the application for a short-term loan from CIMB for a SM loan. Extracts of the Statement of Comprehensive Income and Statement of Financial Position of LTC, submitted with the justification to ans, are provided below: Mr. Fourie Fau was perfectly willing to pledge the company's accounts receivable, investory or anything else that the bank thought would be desirable security as long as the arrangement was fair to the company and specific enough so that he could count on having the funds available when he needed them. You explained that the bank was always interested in sound on proposals from companies that showed the promise of developing into good accounts. You promised to study the request and said that you hoped to III U 83% 2:26 Read Only - You can't save changes to this file. and specific enough so that he could count on having the funds available when he needed them. You explained that the bank was always interested in sound loan proposals from companies that showed the promise of developing into good accounts. You promised to study the request and said that you hoped to visit the company in the near future Mr. Fauzie Falso pointed out that LTC was a familiar name to two other majerbanks and suggested you to consider seeking the insights of the loan officers involved. Summaries of their comments are provided as below: Bank of HLBB (Asset Based Lending Division "Fauzie Fau is a very likeable, magnetic person who puts you through challenging but enjoyable mental gymnastics during negotiations. He is also a grinder who comes back once a week with a new request. He never lets up when he wants something just keeps coming at you and grinding away. The CEO. Pak Wan also tries to get to the highest possible wuthority, even ce mundane issues. He lett HLBB because of our willingness to add to LTC's highly leveraged position. We simply didn't believe that the quality of the assets warranted higher lending limits AGRO Bank (Technology Leading Group"Pak Wan is extremely honest and made LTC agen book The bankers were invited to the strategic planning meetings and were kept informed of developments at the company. Pak Wan is well trained with an MBA from City University, and is a tough effective CEO He is a doer and a shaker Statement of Financial Position of Lion Tools Corporation as at 31 December 2016 2015 2016 (000) 2015 (000) ASSETS Non-current assets 1 000 1000 Plant and equipment 31 000 Dep (13000) (10000) 25000 Current assets Cash and cash equivalents Trade receivables Inventories TOTAL ASSETS 1 800 7600 5220 33 620 2000 6 000 5 000 30 000 4 000 6620 4 000 4000 EQUITY AND LIABILITIES ordinary share Retained camnings Non-current liabilities Debentures 4000 4000 Current abilities Trade payables Accrued expenses TOTAL LIABILITIES AND EQUITES 15 600 3 400 33620 15 000 3 000 33000 Extract of the Statement of Comprehensive Income of Lion Tools Corporation for the year ended 31 December 2016 III 1 83% 2:26 Read Only - You can't save changes to this file. TUIAL LIRDILIILS AR EQUITES JUULU JU Extract of the Statement of Comprehensive Income of Lion Tools Corporation for the year ended 31 December 2016 2016 ("000 2015('000) Revenue (all credit) 45 000 40 909 Cost of sales (23 000) (20 900 Gross profit 22 000 20 000 Selling and admin expenses (13 000) (11 818) Other expenses (3 000) (2000) depreciation) Finance costs (412) (400) Profit before tax 5588 5782 Income tax expense (2235) (2313) Profit for the year 3 353 3 469 ordinary dividend 733 000 758 000 You have obtained the following industry averages: Gross profit margin 50% Operating profit margin 15% Net profit margin Return on assets 10% Retum on equity 20% Current ratio 1.5 Quick ratio 1.0 Debt Ratio 0.5 Time interest eamed 25 Days Receivables 45 Inventory Tumover 8 Asset Turnover REQUIRED Prepare a MEMORANDUM to submit to your boss, as to whether finance should be granted to Lion Tools Corporation . Use the format tables that follow in order to complete the ratio analysis portion of the memorandum Provide comments and evaluations under the respective topics provided NO MARKS will be awarded for stating an increase or decrease in the ratios. . You may assume 385 days in a given year and you are not required to use averages. Assume credit purchases are equal to cost of sales. Show all your workings and round to 2 decimal points . Use font Arial 11 in preparing your memorandum . Do not exceed 10 pages. = III 0 2:26 21 al 83% FM ASSIGNMENT - Read-only ... Read Only - You can't save changes to this file. ASSIGNMENT (15 MARKS) Lecturer : Puan Azizah Md Nor 012-2132122 You are the Vice President of Corporate Credit Department at CIMB Bank. Your main responsibility is to review applications for loans. You are at present reviewing a short term loan applicatie of RM1million by the Lion Tools Corporation (LTC) LTC manufactures various types of high quality punching and deep drawing press tools for kitchen appliance manufacturers CASE CONTEXT LTC has been into the market for 2 years and has recently gone through the initial public offering (IPO) process and has become a public company. LTC has an annual sale of RM45 million in year 2016 LTC makes unique tools for kitchen appliances. For the past 2 years LTC has spent so much on the RED LTC's 2-years performance revealed challenges in terms of Account Receivables collection. Within this year period. LTC availed loans from HL.BR and Agro Bank. Though Mr Fauzie Fae has proven himself to be very likeable and persistent person, the company's 2-year performance poses a challenge for lum and for LTC to avail the MSM from CIMB You as the VP of the Credit and Corporate Loan is in dilemma now ce whether to approve the LTC'S request for the short term loan given the information he got from asking the other 2 bunks who handled LTC's as LTC has a good working relationship with the other two banks. Both Banks have praises for the company and its determined manager. However, willing to increase LTC sborrowing limit based on their average leveraged position LTC land experienced extraordinary growth, fueled by heavy spending a research and development and a rapid expansion of its salesforce. Its technical staff was very well regarded at developing new products with a wide range of applications. The combination of state-of-the-art products and a rapidly expanding market resulted in sales growth of 10% per year. Mr. Faurie believed that industry sales would continue to grow at this rate and that any failure to maintain LTC's market position would be damaging in terms of competitive position and internal morale. Sales volume, which had grown coatimously from the star, was always large in relation to the wailable capital. The situation was exacerbated by large operating losses as LTC fedew markets aggressively Management met the financing pressures by heavy reliance on short-term credit With the two-year financial statements, you will have to assess the viability of appeaving LTC's loan request The case will be analyzed using your perspective. Also, it will be assumed that LTC is a start-up company and this is the main reason why LTC relied heavily on short term loans to finance their initiatives for growth Mr Fauzie Farm, the financial manager of LTC, has submitted a justification to support the application for a short-term loan from CIMB for a SM loan. Extracts of the Statement of Comprehensive Income and Statement of Financial Position of LTC, submitted with the justification to ans, are provided below: Mr. Fourie Fau was perfectly willing to pledge the company's accounts receivable, investory or anything else that the bank thought would be desirable security as long as the arrangement was fair to the company and specific enough so that he could count on having the funds available when he needed them. You explained that the bank was always interested in sound on proposals from companies that showed the promise of developing into good accounts. You promised to study the request and said that you hoped to III U 83% 2:26 Read Only - You can't save changes to this file. and specific enough so that he could count on having the funds available when he needed them. You explained that the bank was always interested in sound loan proposals from companies that showed the promise of developing into good accounts. You promised to study the request and said that you hoped to visit the company in the near future Mr. Fauzie Falso pointed out that LTC was a familiar name to two other majerbanks and suggested you to consider seeking the insights of the loan officers involved. Summaries of their comments are provided as below: Bank of HLBB (Asset Based Lending Division "Fauzie Fau is a very likeable, magnetic person who puts you through challenging but enjoyable mental gymnastics during negotiations. He is also a grinder who comes back once a week with a new request. He never lets up when he wants something just keeps coming at you and grinding away. The CEO. Pak Wan also tries to get to the highest possible wuthority, even ce mundane issues. He lett HLBB because of our willingness to add to LTC's highly leveraged position. We simply didn't believe that the quality of the assets warranted higher lending limits AGRO Bank (Technology Leading Group"Pak Wan is extremely honest and made LTC agen book The bankers were invited to the strategic planning meetings and were kept informed of developments at the company. Pak Wan is well trained with an MBA from City University, and is a tough effective CEO He is a doer and a shaker Statement of Financial Position of Lion Tools Corporation as at 31 December 2016 2015 2016 (000) 2015 (000) ASSETS Non-current assets 1 000 1000 Plant and equipment 31 000 Dep (13000) (10000) 25000 Current assets Cash and cash equivalents Trade receivables Inventories TOTAL ASSETS 1 800 7600 5220 33 620 2000 6 000 5 000 30 000 4 000 6620 4 000 4000 EQUITY AND LIABILITIES ordinary share Retained camnings Non-current liabilities Debentures 4000 4000 Current abilities Trade payables Accrued expenses TOTAL LIABILITIES AND EQUITES 15 600 3 400 33620 15 000 3 000 33000 Extract of the Statement of Comprehensive Income of Lion Tools Corporation for the year ended 31 December 2016 III 1 83% 2:26 Read Only - You can't save changes to this file. TUIAL LIRDILIILS AR EQUITES JUULU JU Extract of the Statement of Comprehensive Income of Lion Tools Corporation for the year ended 31 December 2016 2016 ("000 2015('000) Revenue (all credit) 45 000 40 909 Cost of sales (23 000) (20 900 Gross profit 22 000 20 000 Selling and admin expenses (13 000) (11 818) Other expenses (3 000) (2000) depreciation) Finance costs (412) (400) Profit before tax 5588 5782 Income tax expense (2235) (2313) Profit for the year 3 353 3 469 ordinary dividend 733 000 758 000 You have obtained the following industry averages: Gross profit margin 50% Operating profit margin 15% Net profit margin Return on assets 10% Retum on equity 20% Current ratio 1.5 Quick ratio 1.0 Debt Ratio 0.5 Time interest eamed 25 Days Receivables 45 Inventory Tumover 8 Asset Turnover REQUIRED Prepare a MEMORANDUM to submit to your boss, as to whether finance should be granted to Lion Tools Corporation . Use the format tables that follow in order to complete the ratio analysis portion of the memorandum Provide comments and evaluations under the respective topics provided NO MARKS will be awarded for stating an increase or decrease in the ratios. . You may assume 385 days in a given year and you are not required to use averages. Assume credit purchases are equal to cost of sales. Show all your workings and round to 2 decimal points . Use font Arial 11 in preparing your memorandum . Do not exceed 10 pages. = III 0