An analysis of global machinery and metals company (GMMC) and Caudilo, Houben and Noor. (Finance, Credit & lending decisions)

CLD Case Review GMMC [Part A]

Question 1

· Mechanics of letter of credit arrangement

· Risks faced by the bank in issuing a letter of credit.

[Provide 4 classes of risk: insolvency of GMMC, etc, etc]

· Additional collateral [what does GMMC have that is of value to the bank?]

Comment in GMMC has high or low default risk.

Question 2

· Provide 4 classes of ratios and numbers [Leverage, Liquidity, Activity(efficiency), Profitability ratios]

· Look into activity ratio and see if it can provide GMMC with funds from inventory and account receivables. [Decrease collection period and increase inventory turnover]

· Inventory and accounts receivable of sound quality?

· Comment on bad debt, sales increase, etc.

Question 3A

· Request line of credit: $500,000 to $1M

· Request letter of credit: $250,000 to $1M

Question 3B

· Line of credit mainly to machine tool division (business of division? Credit fully used?)

· Letter of credit for additional steel inventory. Why?

· FX risks. Hedging required?

Other issues – Ratio analysis, peer analysis, sensitivity analysis.