Custom Snowboards, Inc.
Financial Data
Company requirement
• Custom Snowboards, Inc. needs an amount of
$1,000,000 and it approached the bank
authorities
• Bank authorities thinking the proposal to accept
or deny. However the bank interested to
provide $1,000,000 with 15-year term at 6.75%
• In this regard, the bank imposing a condition
that the company must maintain the
compensating balance of $300,000
Financial Picture
Financial Area
14
13
12
Competitor
Times interest earned
1.10
1.74
3.45
5.1
Debt to total assets
56%
58%
57%
38%
Financial leverage
11.23
2.34
1.41
NA
Net profit margin
0.09%
0.68%
2.25%
5.14%
Return on total assets
0.35%
2.68%
8.67%
5%
Return on Equity
0.81%
6.41%
24.20%
8%
Assets turnover
4.12
3.94
3.86
2.1
Mitigating Risks
The company financial leverage is increasing over
the next 3 years and it will be as follows:
Year
14
13
12
Calculation of Financial Leverage
EBIT
82000 134000 284500
EBT
7300
EBIT/EBT
11.23
57200 202000
2.34
1.41
Loan Repayment
Financial Area
14
13
12
Competitor
Times interest earned
1.10
1.74
3.45
5.1
Debt to total assets
56%
58%
57%
38%
Financial leverage
11.23
2.34
1.41
NA
Net profit margin
0.09%
0.68%
2.25%
5.14%
Return on total assets
0.35%
2.68%
8.67%
5%
Return on Equity
0.81%
6.41%
24.20%
8%
Assets turnover
4.12
3.94
3.86
2.1
CONCLUSION
• The company asking the fund of $1,000,000.
• In this regard, bank is under thinking as it will
•
be risk and hence can ask mortgage of the
property.
Further the bank making restriction to maintain
the composite balance of $300,000 which is
another burden to the company.
CONCLUSION
• Therefore, the company should request to
•
•
decrease the maintenance of composite balance.
Further, the bank may also ask security by way
of mortgage to mitigate the risk.
As the company has not enough properties for
such security, it should acquire more properties
by way of collateral securities.