Introduction to Case
1. Bank Manager
3. New Office – Human and Intellectual Capital
2. Looking for New Business Opportunities
4. Successfully set a Meeting with MD of HICL
Growth
Meeting Outcomes
4. Needs Medium Term Financing of 1.2 Million
5. Six years Old Business, going through rapid
expansion, with 95 employees,
6. From 3 different location to the new One
Ratio Analysis
HUMAN & INTELLECTUAL CAPITAL LIMITED
Ratios and Other Information
As at May 31 Year 20X1 Year 20X2 Year 20X2 (4 months to 30th Sep) 20X3 (12 months to 30 May)
Forecast Actual Forecast
Liquidity
Current ratio 0.83:1 0.84:1
Acid (Quick) test ratio 0.81:1 0.83:1 0.51:1 0.44:1
Efficiency
Credit given (days) 89 81 52 38
Credit taken (days) 83 90 70 69
Profitability
Gross profit margin (%) 28 32.9 35.7 34.3 36
Net profit margin (%) 1.3 3.8 9.7 5.6 6.3
Financial Structure
Gearing (%) (To compute the ratio)
Interest/finance charges cover (times) 4.4 4 7.3 3.6 5.2
Net working assets to sales (%) 3.2 6.1
Retained profit to sales (%) 1.1 2.1
11.8 2.0
Balance Sheet’s AnalysisTrend Analysis
0.00% 200.00% 400.00% 600.00% 800.00%1000.00%
Cash
Debtors
Stock
Total Current Assets
Total Fixed Assets
Total Assets
Bank overdraft
LT Debt current portion
Current Tax
Total Currrent Liabilities
Long term financing
Total Longterm Liabilities
Distributable reserves
Shareholders' funds
Total Liabilities & SHE
Trend Analysis
Revaluation Reserve
523,369in Shareholder Fund
Creditors
Hire Purchase
Bank overdraft
LT Debt current
portionCurrent Tax
Term liabilities
Hire Purchase
over 12 months
Long term
financingRevaluation
reserve
Distributable
reserves
Shareholders'
funds
COMMON SIZE ANALYSIS 20X2
Creditors
Hire Purchase
Bank overdraftLT Debt current
portion
Current Tax
Term liabilities
Hire Purchase
over 12 months
Long term
financing
Distributable
reserves
Shareholders'
funds
20X1
Balance Sheet’s Analysis
Cash
Debtors
Stock
Freehold
land &
buildings
Plan,
Machinery
& Vehicles
TOTAL ASSETS – COMMON SIZE
ANALYSIS
Cash
Debtors
Stock
Freehold
land &
buildings
Plan,
Machinery
& Vehicles20X2
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Cash Debtors Stock Freehold
land &
buildings
Plan,
Machinery
& Vehicles
Total Assets – Comparative
Common Size Analysis
Vertical Analysis 20x1 Vertical Analysis 20x2
20X1
Balance Sheet’s Analysis
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
Creditors
Hire Purchase
Bank overdraft
LT Debt current portion
Current Tax
Term liabilities
Hire Purchase over 12 months
Long term financing
Revaluation reserve
Distributable reserves
Shareholders' funds
Common size Analysis - Total Liabilities Comparative
Common size Analysis 20x2 Common size Analysis 20x1
Income Statement
HUMAN & INTELLECTUAL CAPITAL LTD
Profit & Loss Account Summary
12 months to May 31 Year 20X1 Year 20X2
4 months to 30th Sep Year 20X2
4 months to 30th Sep 20X2
20X3 (12 months to 30 May)
Adjusted Calculation
Forecast Actual Forecast
Sales2,685,374 5,234,983 2,433,000 2,111,842 7,398,000
Profit after tax34,549 198,829 235,000 119,136 466,000 236,244
Interest (Finance
charge) 10,097 65,193 37,266 45,304 111,700 135,795
Depreciation38,429 45,267 16,800 16,800 54,000
Directors' remuneration47,298 63,663 20,000 20,000 85,000
Tax @ 30% Assume14,784 98,932
EBITDA97,859 408,221 289,066 181,240 631,700
EBIT59,430 362,954 272,266 164,440 577,700
Expected Interest260,795
Interest Coverage with EBIT1.3917
Int Cov with EBITDA1.5653
Ratio Analysis
Return on Equity
Current Ratio
0.8320x10.8420x2
3.12%20x1
7.82%20x2
Less than 1
Less than 10% assumed profit rate
Short term
Assets
Long Term
Assets
FINANCING OF CURRENT LIABILITIES
Debt to Equity
11.820x1
2.020x2
Due Revaluation of Building that is still
unrealised
Agreement in PrinciplesProposed Loan Calculations
1. $1.25 Million Loan Principle
2. At 10% Profit Margin, Total Payable in 5 years
$ 1.875 Million
3. First Year debt repayment
$ 115,871 Interest
$ 318,706 Installment
4. Adjusted Expected Interest payment for 20x3
$ 260,795 Adjusted Exp + New Facility
Agreement in PrinciplesInterest Coverage Ratio for 20X3 with New Loan
Interest
1. 362,954 EBIT 20X3 & 408,221 EBITD 20X3
2. 362,954/260,795 IC
3. IC = 1.39 or 1.56 i.e < 2
Agreement in Principles
“YES”, subject to certain conditions
Past 3 Years Audited Accounts
5 year Projected Mgmt Accounts
130% Collateral/Charge
Other Facilities
Bai Inah Cash Line (OD) Financing - i
(2nd contract)
Customer Bank
Asset (owned
by the Bank)
Customer applies financing from the bank
2. When ownership of the asset transferred to
customer ,simultaneously the asset is sold back
to the Bank at a price equivalent to financing
amount and the Bank pays on cash basis to
customer as principal limit of Cash Line, made
available in customer’s Wadiah Current Account
1. Bank sells their asset at a selling price (financing
amount plus profit margin) on deferred term.
(1st contract)
Customer pays profit for utilized amount on
monthly basis. Profit on unutilized portion is
rebated
Other Facilities
Customer
Seller/
Supplier
Bank
Buyer1. Sells on credit term
2. Presents the debt (invoices) and
bank purchases the debt arising
from the sale transaction and
pays the Bank on maturity
3. Settles the
purchase price
on or before
maturity date
Bai Al Dayn Working Capital Financing i (BWCF)