Question

of a middle-sized Company (with the annual turnover of Euro 5 min) and in with your lending bank with the intention to increase your loan portfolio you provided the bank manager with the preliminary financial statements of You are the owner of a middle sized came to the meeting with your lend Ar the meeting you provided the bank yow company Malance sheet as of 31/12/2016 as of 31/12/2015 500 500 Total current assets 95 90 Inventory Trade and other accounts receivable Total current assets Total assets 90 195 695 170 620 130 180 155 390 375 40 40 620 Share capital Retained earnings Total equity Long term loans Borrowines from shareholders Total long term liabilities Accounts payable Short-term portion of long-term debt Total short-term liabilities Total equity and liabilities Income statement Thous. RUB Sales Gross profit Operating profit Interest Tax Net profit Depreciation 2016 2015 490 147 450 135 What answer are you likely to receive from the bank manager before they even start to proceed with the further analysis of your company?

Answer 1

The Bank Manager is likely to say the following:

1) Whether the loan required is for meeting Working capital needs or for meeting Capital Expenditure (Fixed Assets increase from 450 to 500)   or for retiring the  long term borrowings of the company.

2) The interest for the year 2016 has come down to 35 as against 48 in the previous year. When there is no repayment of

the loans and also when there is an increase in borrowings from shareholders , how the interest expense for the year

can come down.

3) The Debt Equity ratio is 2.58:1 if we consider the owned funds of 180 and the borrowed funds of 465 ( including the short term portion of long term debt of 90 which is an accounting treatment)) , which is on the higher side. This may result in   rejection of loan.