What Determines a Company 's Viability for a Loan Essay

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Ace CompanyExecutive summaryThis research is to depict the relationship between the organization's lending loan and the financial performance of Ace Company. The study uses Ace Company as their case study approach using their qualitative and quantitative data. The Ace organization has been on the market for some time and has a good reputation in its business. Therefore, they have earned themselves a vital credit appraisal, giving them a more competitive advantage in the field. This made the organization lending loan to Ace Company conclude that credit appraisal of Ace could survive the market pressure and be profitable. Therefore, it recommends continuously assessing Ace Company's risk management to determine if they are more competent to deserve the loan they request. Thus, this research has concluded that the credit risk management of Ace Company is directly proportional to the performance of the loaning organization.IntroductionMany firms take loans to influence the demand for their products. The Ace organization wants to request a $3 million loan, repayable in 10 years, to purchase production equipment and develop accompanying software. However, based on lending, organizations allow firms to benefit from their loans if the added cost of the receivable is less than the profitability generated due to the organization's increased sales (Marshall et al., 2020). Therefore, when lending organizations can identify potential loan defaults, it will save them a great deal since that will lead to decreased cash flow and low liquidity and, thus, financial distress to the firm requesting the loan. On the other side, if the borrower organization has a lower credit exposure depicting reduced chances of bad debts, it indicates that they are financially healthy and worth the loan. Business dynamics are evolving, and the lending organization needs to be more cautious to understand risk management and cash flow increase. Therefore, the lending organization needs to be more careful not to find themselves in credit risks, including lost principal and interest and increased collection costs. Credit risk is when the lender is on a higher stake of incurring a loss from a borrower's failure to repay their loan or meet their contractual obligations (BROCK & EICHLER, 2022). Thus, credit risk management enables lending organizations to understand their exposure to Ace Company contracts. Therefore, it is essential to assess the Ace organization's risk and be equipped with strategies to determine if they are worth being credited the amount of loan they are requesting.The financial performance of Ace Company.Credit risk appraisal is the process through which the leader asseses the borrower's creditworthiness to determine if they are worth the loan they request. It should be comprehensive to minimize the risk of exposure to the lender. It should consider factors like the applicant's income, several dependents, monthly or yearly expenditure, and repayment capacity, among other factors (Avakumovic & Avakumovic, 2016). Thus the management of the lending organization should apply risk control techniques to ensure they are issuing Ace organization credit that is within their capabilities to pay on time.Account receivable collectionsAccount receivable is the number of funds the organization anticipates gaining from the customers regarding their debt responsibilities.

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After analyzing Ace Company's financial performance for their previous years, it depicted that the appendixes customers are trending upwards, implying that they are paying more yearly finances towards their debts. This is a positive trend for the organization since when they receive…

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…the metrics of Ace organization by focusing more on their inventory ratio since it depicts the organization's liquidity, profitability, leverage, and productivity ratios that determine whether they are eligible for the loan they are requesting (Gavin, 2019). This helps in forecasting the future organization's worth of projects and assets to understand how their values might change in the years ahead and know if they will find some difficulty repaying their loan or managing efficiently. Once the management of the lending organization has understood the Ace Company's present value of future cash flow, it is easy to determine if they are worth the endeavor. Therefore, having considered all the matrices of Ace organization, it indicated that they are selling more and their inventory is increasing steadily, which is a positive indication that they can repay their loan over that specified duration. Thus the loan request should be funded.AppendixThe financial data used for analyzing Ace's net worth to determine if they are eligible for the loan is condensed from the financial statements. Also, it is essential to note the income statement for the two years is up to the 31st of the last month of the year.· The common stock's market price increased from $81 in 2016 to $104 in 2017 per share.· Within the two year duration, there were no changes in the common stock shares.· There are no shares of preferred stock.· Cash dividends were paid for 2017 and 2016.· All of the Ace company purchases were through credit.Note: All the figures used in the table should be multiplied by a thousand.ACE BALANCE SHEET AND FINANCIAL STATEMENTAssets20172016Amount of cash$2,547$1,800Account receivable40003900Inventories (FIFO)60005000Net of accumulated depreciation100009800Organization other long-term assets10001000ALL THEIR ASSETS….....

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