This assessment is designed to ensure that students fully understand the inter-relationships that exist between the figures in financial statements based on the principles of financial management, specifically credit management. Secondly, this assignment is designed to ensure that students are able to interpret the relevant ratios derived from financial statements for the purposes of credit assessment and credit-granting evaluation. Lastly, the credit evaluation report preparation test the student's writing and critical thinking skills in credit evaluation.

Gamma Water Heater Manufacturing Sdn. Bhd. (GWH) has just started manufacturing of highly innovative and intelligent water heaters in Malaysia three years ago. This highly intelligent water heater that can auto detect low water pressure and auto-switch to high pressure jet spray water heater for comfortable showering experience on a consistent manner. GWH current turnover is approximately RM12 million per annum for the year ended 31 December 2020.

FHB, a Bursa Malaysia listed company, the wholesaler of electrical appliances with more than forty (40) years of establishment in Malaysia is keen to set up a new trading arm dealing with home water heaters under a newly incorporated subsidiary FHB Water Heater Marketing Sdn. Bhd. (FWHM). GWH is desirous of having this FHB's wholly-owned subsidiary as one of its distributors due to FHB's extensive network and experience dealing with electrical home appliances through Peninsular Malaysia, Sabah and Sarawak.

FWHM has submitted to GWH the application to open a trading account. This FHB new subsidiary was incorporated on 5 March 2021 under the Companies Act 2016 with a paid-up capital of RM100,000. FWHM estimated that they can sell between RM500,000 to RM 1 million worth of GWH water heater products per month and is seeking a credit term of 120 days and applied for a credit limit of RM4 million. To support their application as FWHM is a new set-up with no own track record, FWHM procures their holding company (FHB) corporate guarantee in favour of GWH as the collateral for FWHM credit account application.

You have just joined GWH as a Credit Control Executive and are tasked to evaluate the application for the trading account of FWHM with a credit limit of RM4 million with 120 days term fully secured by a corporate guarantee of FHB for a limit of RM4 million.

Write a credit evaluation report on FWHM to your Credit Manager and recommend your proposed credit limit, credit terms, collateral/s to be obtained, and any other terms and conditions.

REPORT STRUCTURE

Evaluation and Analysis: description and analysis of Fiamma Holdings Berhad (FHB) and its new subsidiary company (FWHM) and their request for credit trading account.