Week Two Questions
Working Capital Management and Short-Term Finance
Assume you are a credit analyst working in the credit department of the Northrup National Bank and George Dodge asked you to analyze whether the bank should extend the requested $465,000 loan to Butler Lumber. Using the 5Cs of credit analysis format, prepare a report for Mr. Dodge. Here is some guidance:
1. How has Mr. Butler met the financing needs of the ...view middle of the document...
3. Why has Butler Lumber borrowed increasing amounts despite its consistent profitability? (Analyze the company’s cash flow and the growth in its assets. This can be done with a simple funds flow analysis, a calculation of free cash flow and/or an additional funds needed (AFN) analysis.)
1. Do you agree with Mr. Butler's estimate of the company's loan requirements? (HINT: You need to consider both the increased profitability and the increased financial requirements of taking the supplier discounts.)
1. What do you think about the level of net worth compared to total assets?
2. What has been the trend? What would the capital ratios look like after the proposed bank loan?
1. Would you require that this loan be secured?
2. If so, by what assets, both company and personal?
3. What is you opinion about the quality of such assets in bankruptcy?
1. What covenants, restrictions and/or conditions would you recommend Northrup require?
2. How would the economy and business conditions influence your recommendation.
2. How would you assess the character of Mark Butler and would you feel comfortable that he would be a conscientious borrower.