Credit-Write-Up Webcast Questions and Answers (March 18, 2010)
Q. In general terms, how would you lay out the whole Credit Write-up or Credit Proposal? Would your best practice credit write-up begin with an executive summary and proceed to further analysis?
A. Yes, we suggest a one page Executive Summary which covers four major areas: borrowing cause or causes, repayment sources as well as the magnitude of each source, risks to each repayment source, and mitigants, if any, to each risk.
The remaining portions of the Credit Write-Up include all in-depth analysis that supports the Executive Summary such as an analysis of a) borrower background and experience, b) management, c) industry and competition, d) historical and projected financial and cash flow analysis, etc.
Q. In the discussion of business drivers on the balance sheet, you equated changes in A/R, Inventory and A/P days into dollars, can you tell me how you did that?
A. In each case we made mathematical calculations that assumed the 2004 accounts receivable, inventory, and accounts payable days did not change in 2005.
In summary, if accounts receivable days had remained 35 days in 2005 (instead of improving to 28 days), the 2005 accounts receivable balance would have been $1,488,624 instead of the actual amount of $1,184,472, a cash flow increase of $304,152.
If inventory days had remained at 187 days in 2005 (instead of improving to 171 days), the 2005 inventory balance would have been $5,975,241 instead of the actual balance of $5,476,364, a cash flow increase of $498,877.
Finally, if accounts payable days had remained at 109 days in 2005 (instead of increasing to 86 days), the 2005 accounts payable balance would have been $3,476,265 instead of the actual balance of $2,741,317, a $734,948 use of cash.
Please request the Seaside Marble, Inc. Credit Write-Up example if you would like a copy of the above calculations.
Q. In general terms, how would you lay out the whole Credit Write-up or Credit Proposal? Would your best practice credit write-up begin with an executive summary and proceed to further analysis?
A. Yes, we suggest a one page Executive Summary which covers four major areas: borrowing cause or causes, repayment sources as well as the magnitude of each source, risks to each repayment source, and mitigants, if any, to each risk.
The remaining portions of the Credit Write-Up include all in-depth analysis that supports the Executive Summary such as an analysis of a) borrower background and experience, b) management, c) industry and competition, d) historical and projected financial and cash flow analysis, etc.
Q. In the discussion of business drivers on the balance sheet, you equated changes in A/R, Inventory and A/P days into dollars, can you tell me how you did that?
A. In each case we made mathematical calculations that assumed the 2004 accounts receivable, inventory, and accounts payable days did not change in 2005.
In summary, if accounts receivable days had remained 35 days in 2005 (instead of improving to 28 days), the 2005 accounts receivable balance would have been $1,488,624 instead of the actual amount of $1,184,472, a cash flow increase of $304,152.
If inventory days had remained at 187 days in 2005 (instead of improving to 171 days), the 2005 inventory balance would have been $5,975,241 instead of the actual balance of $5,476,364, a cash flow increase of $498,877.
Finally, if accounts payable days had remained at 109 days in 2005 (instead of increasing to 86 days), the 2005 accounts payable balance would have been $3,476,265 instead of the actual balance of $2,741,317, a $734,948 use of cash.
Please request the Seaside Marble, Inc. Credit Write-Up example if you would like a copy of the above calculations.