assignment

Forest of Flowers

For this case study you will take on the role of Brad McDougall. You should complete a thorough review of the loan request. As a relatively new credit analyst, you will not get to make the final determination on the loan. Instead you will present your results and recommendation to the credit committee of the Business Development Bank of Canada.

For this assignment you should write a memo to the members of the Business Development Bank of Canada’s Credit Committee. The members of the Committee will be extremely well versed in finance. Space dedicated to explaining simple finance concepts or the calculations involved will prove to be jejune and poorly received by the members. The members are looking for advanced analysis with evidence of critical thinking. The members always appreciate well written memos that make appropriate use of correct grammar and spelling. They are also very busy evaluating several loan proposals therefore memos written in a concise manner are better received.

1.      You must evaluate each of the 5 C’s of Credit explicitly in your memo. A competent analysis is certain to have some discussion of the company’s past performance in terms of the financial ratios we have discussed (liquidity, solvency, profitability, efficiency, etc.). Furthermore, a strong analysis would assess projected project cash flow under various scenarios (expected, best case, and worst case). You should write the conditions section of your memo as if you were assessing the current industry conditions (that is, use recent reports rather than pretending it is 2004).

Note: Although some ratios can be used to evaluate more than one C, you may not use the same ratio to evaluate more than one C in your case study write-up. In addition, you may not use two ratios that convey the same information (e.g., asset turnover and capital intensity; or debt-equity ratio and equity multiplier).

2.      If there are additional factors that you would need to make a final determination about the project’s credit worthiness, then make explicit in your presentation those additional pieces of information you would request.

3.      You must state your loan recommendation (loan amount if any, interest rate and repayment time). You must justify your decision using both your qualitative and quantitative analysis.

4.      If you recommend granting Forest of Flowers a loan, you must build an amortization table that will serve as the loan repayment schedule.