CREDIT REVIEW PROJECT

Hana Microelectronics Public Company Limited

Submitted to A. Watsakorn Thepthim

Nguyen Thuy Duong 4426804Ozkan Sarikaya 4425239Md. nayeem Abdullah 4421364April 4425113Nowril 4515464

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Table of Contents

*Purpose of the Application 3

*Company Profile 3

* PART I: The “4 C’s” of credit analysis 3-13

*Part II: Business Plan and Hana’s Financial Instrument 13-15

*Part III: Ratio Analysis 15-19

*Conclusion

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Purpose of The Application

This is to request for approval on merchandise credit form Hana’s supplier ( or on

financial capital for Hana’s operation from Bank X)

Company Profile:

Corporate Incorporation

Hana Microelectronics Public Company Limited was established in 1978 and

became Listed on the Securities Exchange of Thailand in February 1993. Hana

Technologies Ltd "HTL" was merged into Advanced Interconnect Technologies

Ltd "AIT" on 31st December, 1999.

The Company operates in Thailand and its principal activity is manufacturing of

electronic components.

PART I: The “4 C’s” of credit analysis

1) CHARACTER:Character is the general impression that the company made on potential lender .And from

that, the lender will form a subjective opinion as to whether or not; the company is

sufficiently trustworthy to repay the loan or generate a return on funds invested in your

company. In this section, Hana Electrics’ background, experience in business or industry will

be reviewed and taken into credit’s consideration.

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(i) Strengths An experience business team with an acceptable financial foundation rated

A- (S&P) and BBB+ (Moody’s).

A strong clutter of loyal customer groups in both local and international

markets.

Worldwide positive reputation earned, thus possessing ready trust from

prospects making it easier for the firm to get new customers.

Mature learning curve for organization (economies of scales achieved), and

goodwill in existing business.

Owned distribution, rendering high quality control

Experienced and competent management team

Very diversified business portfolio with Market expansion policy;

The firm serves customers of various industries which are both positively and negatively

correlated, thus their risk in bankruptcy is diversified, while at the same time attracting

investors’ funds since the policy indicates to them that the firm always, with its existing

resources, creates business opportunities in new, but high growth/potential segments or

industries in order to gain more profits.

Differentiation strategy; focusing on creating and sustaining positive long-

term relationship with customers, as well as providing high variety of high quality

tailored products and service, especially those with high complexity and specific

application, to serve each customer.

Total solution offerings, allowing closer relationship with customers and

increasing their dependency with the HANA Company.

Available capacity ready to serve increased demands.

Government support; BOI’s privileges and benefits

(ii) Weaknesses: Tendency to follow conservative policy on investments including Passive in

utilizing Debt financing

Not much effective use of financial instruments to hedge itself against the

quite uncontrollable/ macro-environmental risks like interest and foreign currency

risks.

Absent in media coverage for consumer require heavy investment in publicity

and advertisement.

Restricted distribution channels, due to desire for high quality control and

close management

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Slow new product development

Annual 10% progressive lease payment obligation

Character indicates an applicant’s willingness to pay debt as agreed. So when we

analyzed the Hana Electrics, we have found it’s a rated company. So, company can

easily use debt financing such as issuing bond, or take credit from any bank to finance

any project. Though the company has some weaknesses like lacking of media coverage,

controlled functional distribution channel, it will not affect on their performance to pay

back their debt.

2) Capacity:Capacity to repay is the most critical factor. The prospective lender will want to know exactly

how the company intends to repay the loan

Type of business: Electronics Components

- Nature of Business

Hana Microelectronics Public Co., Ltd. and its subsidiaries mainly involve a single industry

segment in electronic component and mainly carried on in the geographic area in Thailand,

Hong Kong, USA and China.

Industry Analysis

Industry: Electronic component manufacturing; particularly in Semiconductor

Electronic components manufacturing is a small sector within the overall electronic

engineering industry, and can be segmented into active and passive components.

- Active components include: integrated circuits (IC*), discrete semiconductors, electronic

tubes, optoelectronic components and flat-panel displays.

- Passive components include: capacitors, resistors, wound and ceramic components.

General information:

The industry is pressured by innovation and towards shorter time cycles, reduced cost, and

improved quality. At the same time, it is driven by demands for products that are smaller,

lighter, cheaper, and better than the ones they replace.

Apart from impact from economic factors, this industry is highly related with many other

industries since the products and services here are used in producing many other products

and services in a number of industries. Thus, the industry is quite cyclical and fluctuation

according to the overall economic conditions. However, the cyclical effect is alleviated

*

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considerable as the electronic components serve diverse industries, some of which whose

demands are negatively correlated. Thus, the industry risk as the whole is quite diversified

and smoothed out.

Market Structures:

- The market/industry is considerably fragmented due to its very wide products application in

many other industries like electronic equipment; computers, telecommunication, etc.

- However, there are not many big players (about 152 leading companies worldwide), but a

huge number of small operators.

- The market is cyclical according to the economic cycles and the fluctuations of other

related downstream industries.

Industry’s Success Factors:

- Innovation; launch and market innovative products as quickly as possible

- High investment and focus on Research and Development

- Dependence on edged/latest technology, which would increase production efficiency and

thus competitiveness

- (Especially for business clients) Reliability both in product quality and service; on-time

delivery, technical supports, etc.

- Relationship and trust.

Economic Factors Affecting the Industry:

Cost of Doing Business: Business costs

The cost of doing business in an economy is an important consideration for the industry.

These include costs of employees, especially in the microelectronics industry, as

professionals must be hired. Research and development costs in the microelectronics industry

are also of great importance as the business cannot survive without constant development.

Cost of materials used, utilities, and taxes are also important considerations. However, it is

important to realize that lower taxes may indicate that the education level in that

economy/region is also low.

Interest rates

Interest rates indicate how much it costs to obtain financing in the economy. The

microelectronics industry needs to make huge investments into its operations; therefore

interest rates will affect the industry highly. China’s and Thai interest rates are not high;

therefore the cost of financing is not high.

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Business Climate: Economic growth

High economic growth indicates opportunities for the microelectronics industry. The

more growth, the more the demand for high technology products. The growth in China is

a good 8%, and growth in Thailand, being 5.3% recovering from the crisis, indicate that

there are good opportunities for the microelectronics industry in those economies.

Business cycles

Business cycles influence business costs as well as demand for the product, generally, the

operation level. The economy’s ability to avert recessions plays an important role.

Thailand is paying more attention now to controlling the economy, having had learned a

lesson during the 1997 crisis. China’s economic control is relaxed and may cause some

doubts, but general economy is strong for now.

Normal practices are that credit manager’s viewpoint become more optimistic during the

peak of business cycle or the economic growth is strong. Put other words, credit manager

must be aware of direct and indirect competitors who are offering the same these mutual

customer

Income and Spending

The income in the economy forecasts spending, therefore demand for the industry’s

products. Economies with high income levels however also add to the costs. The income

per capita is $4,700 and $7,000 in China and Thailand respectively, which indicates a

possible labor cost advantage, but not a demand disadvantage, since both countries focus

relatively a lot on industries and construction, rather than on agriculture, for example,

indicating good demand for microelectronic products. Thailand recently experienced

consumption and investment spending, which is promising for the industry, with more

competition to be seen.

Government policies

Government policies control if the industry is facing some constrictions or having an

opportunity of government support, like subsidiaries, or other kinds of protection. Political

controls are tight in China, however economically relaxed and supportive and developing in

Thailand.

Market conditions

The demand and supply forces and the competitive structure of the industry will affect the

industry’s strategies. There are no major market leaders in this industry, so the prices are

not determined by the few, but rather by competition.

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Inflation

Inflation is able to affect the industry because it will influence the revenue and profits the

company earns. High inflation may affect the industry negatively. China and Thailand are

both experiencing low inflation rates.

Population:The condition of the industry depends highly on the population, as workforce is needed to

develop and produce the products and customers are needed to buy and use the products

to run the business. Several factors influence the availability of this resource

Population growth

The abundance of needed workforce depends on the population growth. Strong

population growth will ensure workforce availability, giving more room to choose the

right

People for the workforce. The population growth rates are 0.6% and 0.95% for China and

Thailand respectively, being quite moderate, and presenting an opportunity for expanding

workforce.

Education level

Perhaps even more important is the education level of the population, since the quality of

the output, therefore the competitive strength of the producer depends on the ability of the

employees to present such ability, which is dependant on the education level. Moreover,

the customer base will be determined by the education level as well, as electronic

products are demanded more by more educated consumers rather then the uneducated

ones. China’s literacy rate is 86% and Thailand’s 96% with both countries able to

provide educated workforce.

Unemployment rate

Unemployment rates indicate how much people are available for the workforce. A high

unemployment rate may mean that there is an abundance of workforce to choose from,

and low unemployment rate shows that there might be a problem with finding the

necessary workforce, and the companies of the industries may have to offer better

conditions to their employees, which increases costs. The unemployment rates for China

and Thailand are 10% and 2.9% respectively, with China having more abundance of

workforce.

Other factors

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These include other population conditions, such as population general health and health

care availability, location and migration, as well as general morale of the population from

political and economic circumstances.

Industry Growth analysis:

Apart from global economic slump and terrorist factors, persistent softness in the

telecommunications and wireless handset markets along with weakness sign from PC

sector, the largest single-application market for semiconductors, the world demand for

electronic component declined dramatically in late 2000 till mid 2002 and started to pick

up since then, but at a slow pace1 and with fluctuations until mid 2003. However, the

industry has recovered recently with the demand increase mostly in developing countries

and decrease or rise a bit in advanced large markets/nations, as appears in the graph

below:

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Source: Electronic Components Division within ZVEI*, the German Electrical

and Electronic

Profit is the compensation an entrepreneur receives for the assumption of risk in a

business venture. The profitable business must cover its overhead expenses and generate

profits for its owner out of its "after-product-costs" cash.

Gross profit:

*

The industry is and will be growing due to:

Growing stability of the world economy

Strength and rapid expansion of emerging economies in the Pacific Rim and Latin

America; opening new geographical markets

Continuous/more serious development and increasing market penetration of products

heavily dependent on electronic components, including personal computers,

electronic networks and CD players.

An increasing reliance on electronic equipment in industry, commerce and the home;

new products, not yet imagined, will appear, while other products will disappear, but

the impact of electronics on the lives of people everywhere looks set to grow for the

foreseeable future.

Continuous growth of semiconductor sales; more and better application in products

which have high growth now and in the future like wireless products such as Flash

and Digital signal processors or PC related products such as Microprocessors and

DRAM.

Industry Profitability analysis:

Despite recent and continuous price erosion, the industry would be somehow profitable

because of expected higher demand for electronic components, which is due to:

Increased demand for consumer electronic products: the trend towards lower cost

and higher quality of producers; this would give higher value to final products for

customers, thus entice them to buy more.

Recovered global economic status; customers have higher purchasing power.

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Gross profit increases from 2,068,000 to 2,220,000B in year 2003.This show that

company can manage their variable cost very well. This is good sign for the lender.

Operating Profit Margin

Another measure of your profitability is the operating profit margin. This is the core cash

flow source that is expected to grow year to year as your business grows, and it excludes

interest expense, taxes, and "extraordinary items" such as the sale of property or other

assets.

Business rivals’ more creative marketing strategies to employ in the markets to

increase consumption and thus demand

Wider application of electronic components to more industries.

Price erosion is soon to stop since many operators start to realize its bad impact on

themselves and the whole industry’s profitability

All major industries that use electronic components have recovered and started to

take on heavier competition and drive more sales.

Nevertheless, profitability could be eroded by the following factors:

Increased competition from all players might lead to occasional price cuts

Continuous price erosion in other industries which consume electronic components as

raw materials

Contraction of some industries that use electronic components in production like PCs;

this leads to lower a portion of demand for electronic components.

In capacity, we analyze ability to pay debt and make payment as agreed. We will focus on

three factors:1)industry trend,2)general economic conditions,3)business cycle. If we

analyze industry trend, we will notice that high research and development cost,

dependence on edged/latest technology, which would increase production efficiency and

thus competitiveness. This will help to increase the capacity of the company.

If we analyze general economic condition, and business climate, we notice that high

growth rate of economy, high population growth, high educational level, industry in

growth state in China and Thailand; make us optimistic about the capacity of the

company. So, company can use the debt financing.

3)capital:

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Higher profitability from one year (2002:1,114M) to the next (2003: 1,833M) is generally

considered a good sign for a company.

High operating profit 1833 million baht proves that company can also manage their fixed

cost perfectly. This also good sign for the company.

2)Liquidity

How much cash does your business have on hand for immediate use?

Capital Base

The company has 157,189,038 shares of voting stock outstanding. It has 786.04 Mil.

Baht in common stock paid up capital, with 5 Baht par value. The retained earnings

comprise the largest part of the capital base.

As a result, company has relatively strong financial position .If a company experiences an

economic downturn, or unexpected financial catastrophe, it long term survival is quite

ensured.

Public or Private

Hana Microelectronics Public Company Limited was incorporated as a limited company under Thai laws and transformed to be a public limited company on 27 January 1993.

Where its Stocks are Traded

The stocks of Hana Electronics Public Company Limited are traded on the Stock

Exchanged of Thailand, where it was listed in February 1993 after it issued share capital

of 4.725m shares, raising Bht 269m.

Any Controlling or Large Blocks

The largest block of stocks being owned as of April, 2003 consists of 34,496,000 shares

owned by OMAC (HK) Limited, representing 22.16% of the voting power. The next

largest controlling blocks are no larger than 8.17%, which is owned by the State Street

Bank and Trust Company, consisting of 12,724,745 shares. Another 5.77% of the

outstanding stock is also owned by the State Street Bank and Trust Company, for London.

Somers (UK) Limited owns another 6.68% and the rest of the blocks are not higher than

the stated percentages above.

As can be seen, the largest controlling block is owned by OMAC (HK) Limited, and the

rest are quite insignificant. In fact, there are 2,310 shareholders holding shares with less

than 0.5%, which indicates that the company is indeed owned by the public.

Share capital780,915Share subscription received in advance39Share premium1,278,269Retained earnings3,897,712Translation adjustment628,353Total Capital Base (‘000)6,585,288

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Quick Ratio

The quick ratio shows what assets business can immediately convert to cash, such as the

business checking account and money market accounts.

2002:0.954x

2003:1.065x

Recent Stock Performance and Analysis

Hana Microelectronics’ stock price has been decreasing at a decreasing rate in the years

2000-2002 until a sharp increase of approximately 67% in the year 2003. The returns

followed similarly, being negative in the years 2000-2002 and turning big in 2003. The

company has been paying increasing dividends throughout the years and has been

boosting up the returns.

As of 18/12/2003 27/12/2002 28/12/2001 29/12/2000 30/12/1999 P/E N.A. 22.27 10.46 7.34 15.53

P/BV 2.69 1.36 1.51 2.03 2.8

Dvd. Yield(%) 3.6 4.15 3.37 2.81 N.A.

Last Price(Baht) 110 66 74 88.5 181

Return 72.73% -7.09% -13.56% -49.72% -

% price change 66.67% -10.81% -16.38% -51.10% -

The price to earnings ratio has been quite high in the year 1999, and although it did

decrease at first, it is now even higher. The price to book value ratio have been reflecting

the price and return movements, decreasing until the year 2003, where it is at a high of

2.69. This reflects good expectations of the investors about the company. This also

presents an alternative long term-finacing available for the company.

Capital is the financial strength shown by the level of reserve assets such as retained

earnings, that is available for payment .If we see the capital position of Hana Electrics,

they have high P/E ratio that will focus that they have enough evidence to pay back their

shareholders. We know that to generate more assets, we need a superior capital base. The

more we have good capital base, it should help us to go for debt financing that is positive

track signaling for the firm. So bank or suppliers are optimistic to grant Hana Electrics

credit.

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Current Ratio

The current ratio is a broader indication of liquidity because it includes inventory. For

purposes of showing the company’s immediate access to cash, many lenders find it less

useful than the quick ratio. In general, lenders look for your current assets to exceed your

current liabilities.

4)collateral

Collateral or guarantees are additional forms of security the company can provide the

lender. Giving a lender collateral means that Hana pledge an asset it owns, such as its

fixed asset or its account receivable to the lender with the agreement that it will be the

repayment source in case the company can't repay the loan.

Hana Electrics company has handsome of property equipment, plant, considering

accumulated depreciation and provision for impaired assets, amounting 573,490.230

B.Company has very good amount of account receivable figuring 573,490.230B .This

two are the vital souces of collateral in case of lacking the company faces in first three

sectors.

After analyzing income statement, we notice that the sale is growing by 5% comparing to

the year 2002,that is the good sign for the lender,

Company has positive net cash flow from operating activities. In 2002,it is 460,637.462

and the year 2003,it is 410,481.759.This is positive side for the lender, cause company

has enough money left for investing in fixed asset and pay to their shareholders.

Part II: Business Plan and Hana Financial

InstrumentBusiness plan

Starting with Micro display in Ohio, Hana had achieved a breakeven level through further

rationalization and an increase in sales both for development and production. A strategic

decision was taken in June to relocate one manufacturing line to IC assembly facility in

Ayutthaya. This will enable a reduction in cost, an expansion in production capacity, and

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Current ratio more than 2x and the increasing current ratio comparing to the year

2002(3.5x) comparing to 2003 (3.8x) indicated that the company has more net working

capital in their hand to meet the short-term liabilities

3)Leverage

The leverage ratios measure the company's use of borrowed funds in relation to the

amount of funds provided by the shareholders or owners. These ratios tell the lender how

much money you have borrowed versus what money you and other owners have put into

allow for a stronger focus on development by the team in Ohio.

New customer’s wins have added the computer peripheral and mobile phone sub-

assembly industries to our assembly portfolio. Strategic targeting of growth industries and

a diversification of reliance on major customers will be important in order to maintain

growth.

Once again a strong focus on cost control and cost reduction allowed Hanna to

market their packaging services aggressively with the results speaking for

themselves.

Hana’s Financial Instruments :

Financial risk management and policies

The Company and its subsidiaries are exposed to risks from changes in market interest

rates and in currency exchange rates, and from nonperformance of contractual obligations

by counterparties. They use derivative instruments during the year, as and when

they consider appropriate, to manage such risks. They do not hold or issue derivative

instruments for speculative or trading purposes.

Interest rate risk

The interest rate risk is the risk that future movements in market interest rates will affect

the results of the Company ’s and its subsidiaries ’ operations and their

Cash flows. The Company and its subsidiaries’ exposure to interest rate risk relates

primarily to cash at bank and bank overdrafts. Since the majority of these financial assets

and liabilities are short-term the Company and its subsidiaries do not use derivative

financial instruments to hedge such risk.

Foreign currency risk

The Company and its subsidiaries’ exposure to foreign currency risk relates primarily to

their revenues, material purchase, assets, and payables which are denominated in foreign

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the company. This is important because borrowed money carries interest costs and your

business must generate sufficient cash flow to cover the interest and principal amounts

due to the lender. Generally speaking, companies with higher debt levels will have higher

interest costs to cover each month, so low to moderate leverage is nearly always viewed

more favorably by prospective lenders.

Net debt to equity ratio improved from net cash position of 0.17x to the net cash position

of 0.24x due to cash flow from operation.

currencies. In addition to those transactional exposures, the company is exposed to the

effect of foreign exchange movements on its investments in foreign subsidiary

companies, which currently are not hedged by any derivative financial instrument.

Credit risk

The Company and its subsidiaries exposed to credit risk primarily with respect to trade

accounts receivable since most of their sales are made to a limited

Number of customers and that all the company and its subsidiaries ’revenues are derived

from the technology industry. The management, however, believes that

the company ’s and the subsidiaries ’ maximum exposure to credit risk is limited to the

carrying amount of receivables less allowance for doubtful debts as stated

in the balance sheets.

Fair value

Since the majority of financial assets and liabilities are short-term, the

management believes that the fair value of financial assets and liabilities do not

materially differ from their carrying value.

PARTIII:Ratio analysis Another tool the lender will use is financial ratio analysis. Ratios permit review of a

company's current financial performance versus that of previous years or an analysis of a

company's financial performance considers the status, changes, and relationships of

critical components of a company's health.

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4) Collection Period Ratio First, the collection period ratio indicates how quickly the company collects the cash its

customers owe it. The earlier you collect it, the sooner you can put it to work purchasing

more inventory or paying for current orders; so the lower the number, the better.

Collection period is increasing, from 52days in 2002 to 64days in2003.It means that the

company needs more money to back up the extra-collection period. SO, that will increase

the financing cost. That’s not the positive side for the lender and their extra average age

of inventory and average collection period will increase the cash conversion cycle for the

company. Increasing cash conversion cycle is the negative for the lender.

The lender also may use financial ratio analysis to consider how a company is doing

when compared to another company. A limitation of such comparative analysis is that

different industries are driven by different factors. As a result, the financial ratios of a

manufacturer and retailer can be quite different even though both companies may be

similarly successful.

Lenders are trained to appreciate both the benefits and limitations of ratio analysis and to

consider financial results in the context of the company's "peer group" of similar

companies within its industry. To find out what the benchmarks are for the type of

business,

The following section presents some widely used ratios from four financial ratio

categories: profitability, liquidity, leverage, and turnover. The lender's analysis also may

include ratios specific to the particular industry.

1)Profitability

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Hana’s Statement analysis:

2003 2002

Cash 80,302.797 1,140,121.727

Receivables 488,532.176 576,639.176

Inventory 315,497.233 403,123.483

Short-term investment 1,173,858.887 ___

Other current assets 77,389.804 44,347.683

Total current assets 2,173,386.501 2,789,679.549

Fixed asset 7,553,695.677 6,410,393.026

Total asset 9,727,082.178 9,200,072.575

Current liabilities 1,947,592.864 2,240,186.736

Fixed liabilities 840,202.095 895,369.164

Net worth 6,939,287.219 6,064,516.675

Total liabilities and net worth 9,727,082.178 9,200,072.575

Sales 8,454,000 8,060,000

Net profit 1,615,000 (866,000)

Ratio analysis 2003 2002

Current assets to current liabilities 3.8 3.5

Quick ratio 1.065 0.954

Debt to net worth (0.24) (0.17)

Sales to inventory 26.8 20

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Sales to receivables 13.98 17.3

Sales to net worth 1.22 1.33

Percent net profit to sales 19 (10.74)

Percent net profit total assets 16.6 (9.4)

Percent net profit to net worth 23.27 (14.28)

Total assets increases while total liabilities decreases. The inventory has decreased

87,626.25, from 4.38% to 3.24% of total asset. This decline in inventory has been

accompanied by decreased in receivable, leading to the decline in amount of the current

asset as a part of total asset than before. However, the decline even further in liability lead

to the still acceptable current ratio in 2003.This current asset-to-current liability ratio

shows that current assets are still considerably in excess of current liabilities, indicating

that the firms are not in a dangerous condition in this respect.

The quick ratio indicates that, even with inventory omitted, the current assets are equal to

the current liabilities. For this ratio, the minimum for satisfactory conditions is often

stated as one to one. The debt to net worth ratio has significantly improved resulted from

both increasing in equity and decreasing in liabilities. Credit managers normally prefer

that owners should have larger stake in the business than creditors.

The sale to inventory ratio indicates that the efficiency with which the management turns

its investment in merchandise into sales. This firm has very favorable ratio.

The sale-to-receivable ratio is also improving significantly showing that the company

management is effectively in collecting. This implicit about company’s wise credit policy

as well.

The increasing of both these ratios can be explained partly by the increase in sale and the

same time reduction in inventory and receivables. And it also reduces the amount of

current liabilities accordingly. Most of cash received invested in fixed assets, implicit the

sacrifice of cash and the loss of opportunities to take cash discount.

The ratio of sales to net worth shows how efficiently owners’ capital is being used. Too

low a ratio means that owner’s capital is not being used efficiently: too high a ratio shows

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insufficient capital for the volume of business being attempted. In this case, the ratio is

too low and getting worse. The larger investment in fixed assets that are not fully

productive partially explains the low ratio here

The net profit to sales appears to be much improving and so are ratios of net worth to total

assets and to net worth. This means that company is using their NPM, TATO, equity

multiplier very effectively, common shareholder are happy. This is the good sign for the

lender.

** Conclusion:

Credit managers, either from, supplier’s credit department, or bank credit function,

reviewing these situation above: the “4 C’s credit analysis” and financial statement

analysis might find some indication of satisfactory and some of very unsatisfactory

conditions.

Merchandise credit is used to finance some firm’s current asset like its merchandise

inventory, most business require additional financial assistance to carry on operation. If

merchandise credit can not mitigate the need of short funding they can go for short term

borrowing. As company’s current ratio and quick ratio are very high we can predict that

they can easily get merchandise credit from supplier. Merchandise credit management

concerns highly specialized type of business credit- facilitating the sale of merchandise

and services in exchange of credit.

On the contrary a commercial bank however usually have higher credit standard than

those of the merchandise credit. Banks must have higher credit standard because they are

entrusted with public’s money. Merchandise creditor have wider margin of profit from

the sale of merchandise than banks from the lending of the money. Because of this,

merchandise creditors may be more willing to accept marginal risk and grant extension

not prudent by bank. More over amount of credit granted by merchandise credit may

represent a small portion of debtor’s debt obligation. Bank loan represent a major portion

of firm’s debt.

Banks are subject to considered supervising. The loans are reviewed periodically. So

they are very much strict to grant the credit policy. They will consider the financial

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statement and past record carefully, and then issue the credit. Hanna electric has a good

financial ratio out let, so it’s not difficult for them to get bank loan also.

For short term needs bank can grant them single payment loan. It may be repaid

with in 30, 60 or 90 days. Short term loan may leave much business with inadequate fund

for continuous working capital. For durable goods bank may grant them business

installment loans. The repayment schedule typically matches the life expectancy of the

asset and the unpaid balance follows the depreciated value of the item financed.

Bank also set up line of credit with a very good business issuing checking

account .the require compensating balances for all the times.

From our point of view bank can grant them line of credit with compensating

balances, because they have very good reputations and growing industry trend.

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