Problem
Your client works for Ace Company. Assume Ace Company requested a $3 million 10-year loan to purchase production equipment and develop accompanying software.
A. Analyze the trend for accounts receivable collections.
a. Identify the trend.
b. Explain the relevance of the trend.
c. Determine if the trend is improving or getting worse.
B. Compare the company's average inventory turnover to the industry average inventory turnover rate. Note that the average industry turnover rate for Ace Company is 10 times per year.
a. Consider whether the company's average inventory turnover is higher or lower than the industry average.
b. Explain whether a higher or lower average is better.
c. Determine whether the trend is improving or getting worse.
C. Evaluate the company's short-term and long-term credit worthiness based on financial performance and trend (comparing this year to last year). Include in your evaluation:
a. Information about performance and trends.
b. Information about other relevant financial information you consider important to the decision.
c. Your recommendation regarding whether the bank should grant the loan based on the financial data.