Loan Application Analysis - Financial Statement and Ratio Analysis

Background and Assignment Overview

Each group will play. role of a loans officer at a large Canadian bank, which has recently received a large loan application from a public company (ex. group's company of choice). The loans officer analyze the most recent yeattend financial statements (eiter 2020 or 2021) and related docuthents the company prepare proforma financial statements and make a recommendation to the loans manager to either approve or deny the company's loan application recently received. Ex. group will also have to recommend at least three terms that would be contained in the loan contract In case the loans manager approves the loan application .(ex. interest rate, securIty,term etc.)

Each group will write a report the body of the report exhiblts of quantitative nature. The report should provlde the backttround, assumptions and analysis to support the recomthendatIon of either to approve or deny. loan application of the company and why. three identified terms in the loan contract are of Importance. 

1.Prepare common-sized (both vertical and horizontal) balance sheet, Incothe statethent and cash flow statetment for the assigned company for the two years Included in the financlal statetment and comthent on whether the financial position, prolitabiIity and changes In cash flows have improved or worsened from the prior year. For. benchmark amount for theca. flow statethent, use the sum of the absolute value of the subtotals for the three categories of cash flows.

2. Calculate a minlmum of 10 ratios Mr the most recent year spanning the Mur main categories of protttability, solvency, Ilquidity and efficiency for the assIgned company, competitor company and industry data where available. One of the ratios must. the price-earnings ratto.

3. Explain whether. assigned company perforthed better or worse than a direct competttor company and tts industry for each of the ratlos and on an overall basis.

4. Identify and explaln why three changes should he made to the assigned company's most recent yeattend financial statethenD make thelr policles more reallstic and/or more comparable to the policies of a competitor company. for example, you could adjust from YIPO to average cost, stralght-Ilne depreciation to uniD basedny's, et. Prepare an ethel spreadsheet to show the impact of the new policies on the assigned compa balance sheet and Incothe statethent for the most recent year. There should he a separate column for each of the Mree changes in policies.

5. Recalculate ratios from above for the assigned company uslng revised financlal statements. Then, explain whether the assigned company's revised financial statethent make the company look better or worse for each of the ratios and on an overall basis.

6. Prepare proforma financial statements for the third year considering all InformatIon obtalned about the entity i.e. after reading the MORA, the most recent annual reports, press releases, etc.). The statting point for the proforma financial statements is the unadjusted most recent year-end financlal statethent of the assIgned company. The proforma statements should include the balance sheet, incothe statethent and statethent of retalned earnings. Notes to the financial statements are not required. bonus of 5 marks Is available for completing a realistic proforma cash flow statethent.

AssumptIons should he explicitly stated and supported for the followlng inputs to the proforma statements: 

a. Inflation rate

b. Growth rate

c. should be specified as primarily.