Should Druthers Forming Limited Be Given the Loan?
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Should Druthers Forming Limited be given the loan?
Druthers Forming Limited was incorporated in 1987 by Mr. Garrett, Norm Sheppard and one other investor with the primary objective to served the need of Sheppard homes. But in the late of 1980’s, Jack Sheppard observed the demand of foundation far outstripped supply in the region and long waits for foundation construction had become standard. ori Norm Sheppard have requested on July 30, 2007 an amount of $350,000 loan from Mr. Brad Mac Dougall, account manager at the Canadian Commercial Bank (CCB). To know whether or not this amount needs to be passed depends on several factors thus for this purpose there are several questions that are needed to be answered before this decision…show more content… For the year 2007 the total asset was $423,504 and total equity is $302,115 which is equal to 28.6%. This is not bad for any company but considering the Banks point of view it would be a lot better if it was higher that 30%.
The next question that was presented is to consider the working capital requirements, including performing a sensitivity analysis on the days of accounts receivable, inventory and/or accounts payable.
As given in the working capital for the year 2007 is $183,129 which compared to previous years has fallen drastically. This means that the financial health of the company is deteriorating and this will keep on happening until the company improves it working capital. In terms of Accounts Receivable, Inventory and/or Accounts Payable the age period is 157 days, 12 days and 57 days respectively. The best way to calculate this is to use ratios and for this purpose we will first look into the Days Sales in Inventory which is 365 / Inventory Turnover which is given as 12 days. This means that the company will receive their inventory 30.4 times in 365 days which is very good for the company’s cash flow and will thus benefit the bank as well.
As for Accounts Receivable we need to take a look at the ratio called Days Sales in Receivables which is 365 / Receivables Turnover. This is also given to us as 157 days which means that it will take 2.32 times for the company to cover its accounts receivable and