Retail Data System Analysis
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Transcript of Retail Data System Analysis
Retail Data System Analysis
MGC Bank04/02/2012
Loan Requests
$14,000,000 ROLC Used for working capital Price: WSJ prime + 1.00% floating Matured 364 days from closing
$1,500,000 term loan Used for purchasing new equipments Price: 5.00% fixed 84 - months
Company Background
Limited partnership Founded by Bill Smith Based in Denver Low cost, turkey design products New customer: Albertsons Current customer base:
80% grocery stores 15% electronic stores Miscellaneous
Management and Ownership Bill Smith (age 71)
Chairman of the Board and CEO 43% of general partnership
Frank Smith (age 46) President MBA from Duke University 28.5% of general partnership CEO candidate
George Smith (age 44) CFO CPA 28.5% of general partnership
Industry Analysis
Recent trends indicate that as technology advances, more customers are updating to newer equipment/services, causing demand for RDS’s products to increase.
Oil price impact Current economic impact
Strengths
Credit worthy customers Secured debt Marketable inventory
People are willing to buy products Strong internal financing
Solid ratios
Weakness
Weaknesses Lack of external financing Low cash balance Poor liquidity
Possible future losses Inefficiency
Obsolete equipment
Competitors
Major competitors: IBM, NCR, Fujitsu, and Honeywell
Competitors are global companies
Collateral
Accounts Receivables
Inventory
Guarantors
Accounts Receivables
Main customers: Albertsons Grocery Stores Kroger Grocery Stores
As of 12/31/2011, 90% of A/Rs are expected to be collected within in 90 days
Inventory
Raw materials
Work in process
Finished goods
Guarantors
Jointly and severally guaranteed by Bill Smith Frank Smith Steve Smith
Loan Agreement CovenantsPositive Covenants Bank will be allowed to inspect inventory,
receivables, and property periodically Borrower must maintain following financial ratios:
Variable cost ratio <85%▪ 2011: 82.71%
Debt coverage ratio >1.25▪ 2011: 1.47
Current ratio >1.0▪ 2011: 1.42
Quick ratio >.70▪ 2011: .64
Loan Agreement Covenants
Negative Covenants Total officers, directors, and owner’s
compensation cannot exceed 1% of total sales
No additional debt without bank approval
No mergers, consolidations, or acquisitions without bank approval
Financial Statement Analysis
Profitability Cash Flow Liquidity Asset Quality Asset Management Leverage Debt Coverage
Profitability
Increased sales in 2011 Decreasing gross margin High COGS Low efficiency
OIROA 1.85% ROA 2.02%
One time sale of real estate Too much bonuses for management
Cash Flow
Higher level of sales
Positive operating cash flow
Need more debt to finance its expansion
Liquidity
Current ratio 1.42 Quick ratio 0.42 High marketable inventory High working capital Need more short-term debt
Asset Quality
Good quality accounts receivable
Marketable inventories
24.5% of the total assets are fixed assets
Asset Management
Not effectively using fixed assets Low fixed assets turnover Old machineries
Effectively using current assets High accounts receivable turnover High inventory turnover
Leverage
Main source of capital: debt High debt to equity ratio Increasing need for capital
Increasing sales High financial leverage risk
Due to low equity capital
Debt Coverage
Current debt ratio: 1.47 To make RDS can service its debt:
Low uncollectible accounts Reasonable owner compensation Favorable cash flow