XYZ Bank told Bob to increase cash to $70,000 from 2016 to 2017. But cash increased from $16,566 in 2016 to just $33,411 in 2017, well short of $70,000. In this Assignment you will review six select changes in Balance Sheet accounts, highlighted in yellow, to better understand how these individual account changes impact overall cash flows.

the 2017 Cash Flow Statement outcomes to explain how specific accounts influenced Bob’s low cash balances…in other words, some reasons why Bob has no cash!
This information allows you to substantiate the 2018 loan denial renewal request. You are aware this action will create dire financial circumstances for Bob’s company. As the loan officer you must pass along the news in a business letter that is most professional and written in an objective manner. Please use values in the letter whenever possible.

CC&R’s
During the original loan the bank included, as part of the loan documentation, a document called Covenants, Conditions and Restrictions (CC&R’s) which the company had to comply with to maintain is credit facility with the bank. The major conditions of this included:
1. The company will maintain at least $70,000 in their DDA (noninterest bearing checking) at all times as compensating balances against their loan.
2. The company will maintain a current ratio of at least 2:1.
3. The company will maintain a quick ratio of at least 1.5:1
4. The company will not increase officer salaries by more than 5% while the loan is outstanding.
5. The company will not pay bonuses to officers without the banks explicit approval.
Teams will also consider compliance with the loans CC&R’, as part of their loan approval process.

Needed for Cash Flow Statement
Net Income $3,155,848
Depreciation 212,366
Dividends Paid 2,966,412
Tax 225,700

Class
For this assignment, I want you to move away from definitions to analysis. Additionally, you do not need to give me definitions of balance sheet accounts. From the documents, given and from the ones you produced talk about:
The operating cycle of the company
The common sized financial statement
The cash flow statement
What did management do to fall short of the minimum cash requirements?
Where was the major portion of the company’s working capital used?
What could have management done to comply with the CC&R’s they agreed to.
Finally, what your loan committee wants to do about the renewal of this loan. In this area you can:
Renew the loan without changing the loan conditions
Renew the loan and modify the conditions to what is now required by the bank to receive loan approval.
Decline the loan.
Remember that banks approve or deny loans based on the 4 C’s of credit, which are:
Character
Capacity
Capital
Collateral
Conditions

Your loan committee should consider these when considering what to do with this loan.

The arrows present the 2016 to 2017 change in account balance. The Team project focuses on the six highlighted accounts.

These six accounts correspond to the denial letter sent to the client and team members are assigned to the six respective accounts.

For example, the balance for Accounts Receivable went down by $58,563. A Team member will analyze the significance of that change and present that information and more in the denial letter. The issue of how payment terms may influence this account also needs explanation.

ONE PARAGRAPH FOR ACCOUNTS RECEIVABLE

ONE PARAGRAPH FOR LONG TERM DEBT