Awal Company is a large labor-intensive manufacturing company located in Arad Industrial Area, an industrial zone...

   

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Awal Company is a large labor-intensive manufacturing company located in Arad Industrial Area, an industrial zone in Muharraq Governorate. Awal Company manufactures and sells disposable crockery, particularly cups, plates, forks, spoons, etc. made of plastic and polystyrene. About 70 percent of its workforce is foreign workers, with the majority comes from India and Bangladesh. The company, established in 2000, has been profitable since its fourth year of operation. Currently, Awal Company serves the whole Bahrain. Although Awal Company supplies to wholesalers in large quantities, it also delivers directly to small operators, especially to canteens operating in factories located in Arad Industrial Area. Subsequent to its potential market expansion, the management of Awal Company has decided to seek a credit facility from your Bank. In the past, Awal Company had relied on a few suppliers to finance a large part of its needs for raw materials. However, due to some reasons, one of the main suppliers is in the process of winding-up (closing). Awal Company is considering seeking other alternative suppliers in China. Awal Company will select your bank to borrow in order to expand and buy plastic machines and equipment needed by their production line at least for next five years. The company's two most recent balance sheets were presented to you in support of their credit facility request. In addition, the company's income statement for the year just ended was provided to support the loan request. These statements are as follows: Assets Cash Marketable Securities Account Receivable Inventory Prepaid Rent Awal Company Balance Sheet as at 31/12/19 and 31/12/20 Total Current Assets Net Plant and Equipment Notes Payable Accruals Bonds Liabilities and Equity Accounts Payable Total Assets Total Current Liabilities Total Liabilities Ordinary Shares Retained Earnings Total Equity Total Liabilities & Equity BD BD BD BD 2020 14,000 6,200 33,000 84,000 1,100 2020 57,000 13,000 5,000 75,000 150,000 225,000 100,000 83,300 BD 183,300 BD 408,300 BD 138,300 270,000 408,300 BD BD BD BD BD BD BD 2019 15,000 6,000 42,000 51,000 1,200 115,200 286,000 401,200 2019 48,000 15,000 6,000 69,000 160,000 229,000 100,000 72,200 172,200 401,200 Awal Company Income statement for the year ended 31/12/20 Sales Cost of Goods Sold Gross Profit Operating and Interest Expenses General & Administrative Interest Depreciation Total Operating and Interest Expenses Earnings Before Taxes Taxes Net Income Current Ratio Quick Ratio Average Collection Period Inventory Turnover Total Asset Turnover Fixed Asset Turnover BD 30,000 10,000 30,000 Industry Average 1.8 0.9 20.0 7.0 1.2 1.8 BD Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Assets Return on Equity Debt Ratio BD BD Other information that you have collected from the Bloomberg includes the industry ratios. The ratios are as follows: BD 600,000 460,000 140,000 70,000 70,000 27,100 42,900 Industry Average 25% 14% 10% 6% 12% 50% Assuming Awal Company's Ordinary Shares are currently valued at BD 165,000 based on equity expert. To conduct an initial assessment on the company, you decided to use the Expert Based Credit Analysis (7 marks). At this preliminary stage, what is your credit decision and why (2 marks)? To support your initial decision, you decided to use the Z-score (4 marks). What is your credit decision and why (2 mark)? Awal Company is a large labor-intensive manufacturing company located in Arad Industrial Area, an industrial zone in Muharraq Governorate. Awal Company manufactures and sells disposable crockery, particularly cups, plates, forks, spoons, etc. made of plastic and polystyrene. About 70 percent of its workforce is foreign workers, with the majority comes from India and Bangladesh. The company, established in 2000, has been profitable since its fourth year of operation. Currently, Awal Company serves the whole Bahrain. Although Awal Company supplies to wholesalers in large quantities, it also delivers directly to small operators, especially to canteens operating in factories located in Arad Industrial Area. Subsequent to its potential market expansion, the management of Awal Company has decided to seek a credit facility from your Bank. In the past, Awal Company had relied on a few suppliers to finance a large part of its needs for raw materials. However, due to some reasons, one of the main suppliers is in the process of winding-up (closing). Awal Company is considering seeking other alternative suppliers in China. Awal Company will select your bank to borrow in order to expand and buy plastic machines and equipment needed by their production line at least for next five years. The company's two most recent balance sheets were presented to you in support of their credit facility request. In addition, the company's income statement for the year just ended was provided to support the loan request. These statements are as follows: Assets Cash Marketable Securities Account Receivable Inventory Prepaid Rent Awal Company Balance Sheet as at 31/12/19 and 31/12/20 Total Current Assets Net Plant and Equipment Notes Payable Accruals Bonds Liabilities and Equity Accounts Payable Total Assets Total Current Liabilities Total Liabilities Ordinary Shares Retained Earnings Total Equity Total Liabilities & Equity BD BD BD BD 2020 14,000 6,200 33,000 84,000 1,100 2020 57,000 13,000 5,000 75,000 150,000 225,000 100,000 83,300 BD 183,300 BD 408,300 BD 138,300 270,000 408,300 BD BD BD BD BD BD BD 2019 15,000 6,000 42,000 51,000 1,200 115,200 286,000 401,200 2019 48,000 15,000 6,000 69,000 160,000 229,000 100,000 72,200 172,200 401,200 Awal Company Income statement for the year ended 31/12/20 Sales Cost of Goods Sold Gross Profit Operating and Interest Expenses General & Administrative Interest Depreciation Total Operating and Interest Expenses Earnings Before Taxes Taxes Net Income Current Ratio Quick Ratio Average Collection Period Inventory Turnover Total Asset Turnover Fixed Asset Turnover BD 30,000 10,000 30,000 Industry Average 1.8 0.9 20.0 7.0 1.2 1.8 BD Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Assets Return on Equity Debt Ratio BD BD Other information that you have collected from the Bloomberg includes the industry ratios. The ratios are as follows: BD 600,000 460,000 140,000 70,000 70,000 27,100 42,900 Industry Average 25% 14% 10% 6% 12% 50% Assuming Awal Company's Ordinary Shares are currently valued at BD 165,000 based on equity expert. To conduct an initial assessment on the company, you decided to use the Expert Based Credit Analysis (7 marks). At this preliminary stage, what is your credit decision and why (2 marks)? To support your initial decision, you decided to use the Z-score (4 marks). What is your credit decision and why (2 mark)?