There are legion factors. apart form the sum involved and security or collateral offered. a bank or any lending establishment considers when allowing a loan to possible borrowers. Some of the most of import are a business/company’s fiscal standing. its fiscal duties. the intent for borrowing. past fiscal traffics of the borrower and its bing concerns with other entities. All of these are of import factors to find whether or non a bank shall bind its money down to the borrower.
Advanced Medical Technology Corporation ( AMT ) . a turning company. is thirstily interested in borrowing capital from Western National Bank of San Francisco. California in the sum of $ 8 million to keep its current market place and to work new markets. The president of AMT believes that given the current standing of the company. gross revenues will go on to turn in the same gait. Here are the issues Western National Bank of San Francisco should look into and analyze in order to come up with a determination sing the loan petition of AMT: ( 1 ) Current fiscal status
The fiscal statements of AMT for the old ages 1983. 1984 an 1985 shows that the company has been sing net losingss for the past three old ages. chiefly brought about by heavy disbursement on research and development. However. despite the losingss. it seems that the company’s net net income border has been bettering in a go oning speed. From 1983 to 1984. the net net income border of the company improved well from -9. 77 % to -5. 44 % . This continued the undermentioned twelvemonth with a net net income border of -4. 82. From this. we can deduce that should the company go on its aggressive and competitory market stance. its net income would go on to better. However. given the per centum of addition. the company will still go on to see negative income in the coming old ages.
Reviewing the company’s fiscal statements besides shows that company is recognizing negative return on assets. Albeit negative. AMT’s return on assets improved significantly from -14. 1 % in 1983 to -7. 15 % in 1984. This growing in ROA continued the undermentioned twelvemonth.
Because AMT relies to a great extent on recognition lines to finance its demands for research and development. it is of import to look into the ability of the company to pay off its debt given its current net incomes and assets. The current ratio of the company is diminishing. In 1983. it had a current ratio of 2. 57. It dropped down to 1. 78 in 1985. This shows the ability of AMT to pay-off its short-run debt. With the current ratio of the company. it may be safe to deduce that the company has the ability carry through its short-run duties.
( 2 ) Security/Collateral
The possible beginnings of security for the bank are histories receivables. stock lists and investings.
AMT has a sum of about $ 6 million outstanding receivables in 1985. Given the ripening of histories receivable that twelvemonth. it seems that there is a batch of room for betterment in the AR aggregation of the company. AMT should besides implement a more strict probe prior to allowing a recognition line to clients or clients. This is to guarantee that the company attains a more acceptable mean aggregation period.
The investing of AMT numbering a little more than $ 1 million may be a good beginning of security for Western National Bank of San Francisco. California.
Recommendation Given the factors stated supra. this paper does non urge the granting of the requested line of recognition in the sum of $ 8 million. The ratio analysis clearly shows that AMT will go on to see negative returns and net incomes in the coming old ages. Its heavy investing in research and development leads to disproportionate operational disbursals. which later consequences to net losingss.
While the president of AMT is confident that gross revenues will go on to increase at unprecedented gait. this may non be plenty for the company to bring forth net incomes from its assets and investings. Given this. AMT is most likely to hold a hard clip in pull offing and paying off a loan in this sum.
