This paper evaluated the creditworthiness of Advance Medical Technology Corporation (AMT) to determine whether Western National Bank (WNB) should approve the $8M loan request of the former. AMT was assessed based on their credit history, financial statements for the past three years (1983- 1985), availability of loan collaterals, and an income statement forecast for the succeeding year.
Analysis of AMT’s creditworthiness using the 5 C’s of credit revealed that the company passed only in terms of Condition because of favorable government policies and an increasing domestic and international demand. As for Character, we find the company neutral since it cannot be determined if Mr. Haskins’ management skill could improve AMT’s financial position. AMT did not pass in terms of Capacity because its assets are mostly held as receivable and inventory with high cash conversion cycle, declining efficiency ratios, and a negative profitability ratio. It also failed in terms of Capital primarily because of its negative interest coverage ratio. Lastly, for the Collateral, the company’s items held as collateral have low turnover rate and thus would take longer to convert into cash.
Furthermore, the income statement forecast showed that the company would continue to experience negative returns and profits in the next few years. Its heavy investment in research and development (R&D) costs leads to disproportionate operational expenses, which subsequently results to net losses. Due to the reduced liquidity and heightened financial leverage of AMT, the group believes that providing lending funds to AMT would be risky to WNB since the company’s ability to repay the debt and interest obligations were found to be doubtful.
POINT OF VIEW
This case will be analyzed using Tom Winter’s, vice-president and loan officer of WNB, perspective.
In April 1986, Tom Winter, loan officer of WNB, was reviewing a loan request of $8 million from Peter