Business Management Case – G.E. Capital Essay Sample

For the instance of GE Capital Canada. Clark Carriers submitted a petition for a loan amounting to $ 270000. It was foremost confirmed that Clark Carriers met the minimum demands set out by the commercial equipment financing division of GE for loans. Cash flow was so analyzed to guarantee that Clark Carriers has sufficient hard currency flow from operations to do payments on current loans. Next the fiscal ratios were analyzed to guarantee that Clark Carriers was efficient in its profitableness. liquidness. stableness. efficiency and growing in which they proved to accomplish positive results in all countries. particularly profitableness. Predating that. the jutting fiscal statements of 2003 were created and analyzed to include the new possible loan to expose how the new equipment and contract will profit Clark Carriers fiscal place. After thorough analyzing of all of these facets of Clark Carriers. my determination on the affair was that Clark Carriers should be granted the loan from GE Capital Canada and this study should now be submitted to the senior history director.

Problem Statement
An bing client of GE Capital Canada. Clark Carriers Ltd. submitted a petition to the Commercial Equipment Financing Division of GE for an extra loan amounting to $ 270000 to finance the purchase of two new freightliner conveyance trucks. four new 53-foot dawdlers and four new nomadic orbiter systems. Assistant history director Steve Rendl at GE must reexamine Clark Carriers fiscal state of affairs and have a study ready to be submitted to the senior history director with his determination to O.K. or deny the loan and the grounds for making so. Sub-Problems

1. The commercial Equipment Financing Department at GE Capital Canada does non cover with companies who have been in concern for less than 3 old ages. It needs to be ensured that Clark Carriers has more than 3 old ages running. 2. It must be shown that Clark Carriers can bring forth adequate hard currency flow to cover the monthly involvement payments on the new loan on top of the payments for the old loans it still has. 3. Clark Carriers debt to equity ratio can non transcend 4:1 after the inclusion of the bank loan in the fiscal statements. 4. Clark Carriers must hold the capacity to cover 10 % of the costs of the assets desiring to be purchased through the bank loan as CEF will merely cover 90 % of the value of the coveted plus. This means that Clark Carriers must be able to finance $ 30000 of the $ 300000 purchase. 5. The character of concern proprietors. economic conditions. and indirect assets must besides be analyzed before allowing the loan. 6. Fiscal statements and projected fiscal statements need to be analyzed to guarantee the go oning profitableness of Clark Carriers with the requested loan.

Analysis
Clark Carriers Ltd.
Cash Flow Statement
December 31 2000 – December 31 2002
Operating Activities
Net Income $ 56999
Other Receivables $ 53
Prepaid Expenses $ 1172
Histories Collectible $ 13. 631
Histories Receivable ( $ 20092 )
Entire Cash Flow from Operations $ 51763

Financing Activities
Loan ( Newcourt ) $ 189000
Loan ( GE Capital ) $ 36000
Entire Cash from Financing $ 225000

Investing Activities
Trucks & A ; Trailers ( $ 368800 )
Computer ( $ 3200 )
Accumulated Depreciation $ 91360
Entire Cash Flow from Investing ( $ 280640 )

Throughout the 24 month period from December 31st 2000 to December 31st 2002 Clark Carriers had gross revenues of $ 1480412. From the hard currency flow statement we can see that from these gross revenues that $ 51763 in hard currency flow from operations was generated. At the terminal of 2002 entire liabilities were recorded to be $ 252307 with annual involvement rates of about $ 12615. Although this hard currency flow in operations is non a well big sum of money we can see that this hard currency flow is sufficient plenty for Clark Carriers to cover their debt payments and involvement.

Fiscal Statement Ratio Analysis
Profitableness
Tax return on Equity
Over the recorded 24 month clip period. return on equity has increased well to 52. 6 % . much about the industry norm of 30. 2 % . A high return on equity compensates investors for the usage of their capital and for the peril that is involved with their investing. Clark Carriers 52. 6 % return on equity shows that direction is effectual in managing the company’s concern resources and this is good in the eyes of loaners when loans are being considered.

Stability
Debt to Equity
Debt to equity has increased for Clark Carries over the 24 month clip period from 0. 23:1 to 2. 2:1. Compared to the industry norm of 1. 56:1 Clark Carriers ratio is higher. which is non a positive thing with debt to equity ratios. It is unfavorable to hold a higher debt to equity ratio as it means the company is more extremely leveraged. Since Clark Carriers has an increased debt in relevancy to its equity the creditor would hold a smaller possible claim on the company’s assets. doing lending less attractive to creditors.

Interest Coverage
Interest coverage for Clark Carriers has increased well from 1X to 5. 5X which is an highly positive addition. This ratio shows how many times the company’s net incomes can pay the involvement on the debt it owes. Since Clark Carriers involvement coverage is so high it indicates to loaners that there is a minimum hazard and that Clark Carriers does in fact have to possible capacity for an addition in loans.

Liquid
Current Ratio
This ratio is a step of Clark Carriers short term liquidness and their ability to pay off short term liabilities rapidly if needed. Clark Carriers current ratio decreased over the 24 month clip period from 3. 4:1 to 2. 3:1. nevertheless this is still an efficient current ratio. It means that for every dollar in current liabilities. there is $ 2. 3 in current assets. Although this ratio has decreased throughout the 24 months. it is still above the industry norm and gives Clark Carriers a sufficient safety cyberspace if they were put in a state of affairs in which they needed to neutralize current assets to rapidly pay off current liabilities.

Acid Test Ratio
This ratio is similar to current ratio as it is a step of short term liquidness. nevertheless acerb trial ratio is a more accurate step of immediate liquidness. Clark Carriers acid trial ratio has besides decreased. nevertheless it is still 1. 7:1 which one time once more is above the industry norm and means that for every $ 1 of current liabilities there is $ 1. 7 in immediate liquifiable current assets. Clark Carriers hence has sufficient sums of liquifiable current assets if current liabilities were needed to be paid.

Working Capital
This liquidness ratio measures the extra dollar sum of current assets in Clark Carriers over current liabilities. Their on the job capital has somewhat increased over the 24 month clip period being analyzed to $ 34421. This ratio varies on the size of the company. nevertheless Clark Carriers working capital is positive. intending that they have a heightened ability to run into its current liabilities.

Efficiency
Age of Receivables
Clark Carriers age of receivables has majorly decreased from 40 yearss to 10 yearss over the 24 month clip period which is significantly lower than the industry norm of 42. 6 yearss. The greater the age of receivables is the more money would be required for Clark Carriers to run. Since Clark Carriers age of receivables is low it needs less hard currency to run as it collects its receivables quicker than the mean transport truck concern.

Age of Payables
Clark Carriers age of payables has besides decreased well from 34 yearss in 2000 to 19 yearss in 2002. which is a positive lessening for the company. This indicates that Clark Carriers has improved their ability to pay their payables faster and more expeditiously assisting their recognition. This shows every bit good that the direction is making a proper occupation in pull offing their histories collectible and that they are salvaging money by taking advantage of recognition price reductions for fast refunds.

Growth
Gross saless Growth
A sale for Clark Carriers from 2000 to 2001 saw a major addition of 219 % and continues to increase from 2001 to 2002 at 29. 5 % . Although gross revenues are decelerating in growing they are still sing growing in their gross revenues which is a positive property for a company.

Net income Growth
Clark Carriers has experienced huge net income growing in both the 2000-2001 periods and the 2001-2002 periods with net income growing of 484. 7 % . This is an highly impressive net income growing. It shows us that the directors at Clark Carriers have achieved astonishing betterments of overall efficiency of the company’s operations and has seen a significant addition in net incomes.

Asset Growth
Asset Growth for Clark Carriers grew 385. 6 % in 2000-2001 but so in 2001-2002 proverb small plus growing. This could be attributed to the current trucks working at their full capacity. This is a cardinal index to Clark Carriers that they are in demand of a new equipment to go on to see growing.

Projected Fiscal Statements

Clark Carriers Ltd.
Projected Statement of Net incomes
Year Ending December 31st. 2003

Revenue30 % -60 % growing from 2002. mean $ 1211177
Cost of Sales62 % of Gross saless $ 750930
Gross MarginRevenue – Cost of Gross saless $ 460248

Operating Expenses
Salaries & A ; WagesIncrease of $ 60000 $ 80259
General & A ; AdministrationIncrease of $ 13000 $ 21512
Telephone & A ; Fax1. 1 % of Gross saless $ 13323
Legal & A ; AccountingUnchanged from 2002 $ 1491
Travel & A ; Auto1. 1 % of Gross saless $ 13323

Rent & A ; UtilitiesUnchanged from 2002 $ 10075
Bank Charges & A ; InterestIncrease of $ 1300 $ 35805
Bad Debts0. 2 % of Gross saless $ 2422
Depreciation ExpenseIncrease of $ 30000 $ 72795
Ad and Promotion0. 1 % of Gross saless $ 1211
Meals & A ; Entertainment0. 1 % of Gross saless $ 1211
Entire Operating Expenses $ 253427

Net Net incomes before revenue enhancements $ 206821
Income Tax45 % of Net Net incomes before Taxes $ 93070
Net Net incomes after Taxes $ 113751

Clark Carriers Ltd.
Projected Statement of Retained Net incomes
Year Ending December 31st. 2003

Get downing Retained Net incomes $ 56845
Attention deficit disorders: Net Net incomes after Tax $ 113751
Ending Retained Earnings $ 170596

Clark Carriers Ltd.
Projected Balance Sheet
Year Ending December 31st. 2003

Assetss
Current Assetss
CashBalancing Number $ 73117
Histories Receivable18 Days’ Revenue $ 59724
Other ReceivablesNo Change $ 429
Prepaid ExpensesNo Change $ 15065
Entire Current Assets $ 148335

Long-run Assetss
Trucks & A ; TrailersAdd cost of new trucks and dawdlers $ 763800
FixturesNo Change $ 5480
Less Accum. DepreciationAdd Depreciation for new equipment $ 216556
Entire Long-Term Assets $ 552724
Entire Assets $ 701059

Liabilitiess
Current Liabilitiess
Histories Payable19 Days Cost of Gross saless $ 39083
Bank Line of CreditAdd 10 % coverage of purchase $ 30000
Entire Current Liabilities $ 69083

Long-run Liabilitiess
Loan ( Newcourt ) Decreased from $ 7000/month payments $ 105000
Loan ( GE Capital ) New loan sum less payments $ 296400
Entire Long-run Liabilities $ 401400
Entire Liabilities $ 470483

Equity
Share CapitalNo Change $ 60000
Retained Earnings2002 + 2003 net Net incomes $ 170576
Entire Equity $ 230576
Entire Equity & A ; Liabilities $ 701059

CEF’s Minimal Lending Requirements

1 ) Clark Carriers Ltd. has been in concern since 1987 which is a sum of 16 old ages run intoing the minimum demands of three old ages in concern set out by CEF. 2 ) As displayed in the Cash Flow Financial Statement for Clark Carriers. they have sufficient hard currency to cover the monthly loan payments of $ 5625. 3 ) New loan of $ 270000 inclusive. Clark Carriers debt to equity ratio is 2. 27:1 which complies with the demand of it non transcending 4:1. With the increased maintained net incomes that came from the buying of the new equipment with the loan. Clark Carriers debt to equity ratio does non change much from its 2002 figures prior to the consideration of the loan. 4 ) Clark Carriers must cover $ 30000 of the $ 300000 plus purchase due to the fact that CEF will merely finance 90 % of the purchase of an plus. Clark Carriers has stated that this $ 30000 will be taken from their bank line of recognition. 5 ) Fictional character of Business Owners

Doug and Annette Clark have been in concern together for the entireness of the company’s lifetime. Doug was a mechanic and driver while Annette managed accounting. They had survived the economic recession and managed to maintain their concern afloat. They have ne’er been late with a loan payment antecedently. despite undergoing tight fiscal state of affairss. They have experience in concern enlargements as they had antecedently expanded to suit a contract in 2001 and the enlargement was successful and profitable.

Economic Conditionss
After the recession in 1989 that caused the bankruptcy of many hauling companies. the transit industry recovered and has experienced strong growing. but monetary values are still low. This requires the hauling companies to trust more to a great extent on high volume of concern in order to bring forth net incomes. In order to accomplish this it is advisable for trucking companies to buy more trucks and dawdlers to spread out the capacity of concern.

Collateral
Clarks Carriers has used $ 50000 of personal assets to procure the bank loan but they have non declared any assets on the balance sheet as collateral. With no assets pledged against the loan as collateral the bank has no collateral to trust on in the instance that Clark Carriers was confronting bankruptcy.

Decision
Based on all of the analysis’ presented in the statement above. my determination for the loan requested by Clark Carriers is that a loan of $ 270000 should be granted to them. Clark Carriers is in demand of this loan for the funding of a purchase of two new trucks. four new dawdlers and four new orbiter systems in order for Clark Carriers to hold the capacity to increase their work burden for a possible new contract. First off. Clark Carriers has successfully met all the demands set out in CEF’s minimum loaning demands as discussed above. This is the footing of the loan credence before to boot analysing the fiscal statements. As shown above in the hard currency flow statement. Clark Carriers has sufficient hard currency flow to cover its current debts and with the added income of the new contract to its net income this hard currency flow will be in greater copiousness for helping in the needed payments of the larger loan from GE. Looking now at the fiscal ratios. it can be seen that they have achieved efficiency in all the countries of profitableness. stableness. liquidness. efficiency and growing. A cardinal factor to look at is the impressive growing in profitableness. demoing that the company directors have achieved great overall efficiency within the concern and can foretell to see a continual growing in net incomes. particularly with the possible new contract.

The concluding points that were analyzed were the projected fiscal statements for 2003 with the inclusion of the requested $ 270000 loan from GE Capital. First looking at the Projected Statement of maintained net incomes. we can see that with the purchase of the new equipmentrevenues for Clark Carriers has increased well. Although the new equipment besides comes with legion added disbursals. we can see that the net income after revenue enhancements has still increased rather to a great extent for the company and proves that the added disbursals do non ensue in Clark Carriers to stop up with a net loss instead than a net income. Traveling frontward to look at the jutting statement of maintained net incomes. we can see that maintained net incomes every bit good. have increased steadily adding to Clark Carriers capital worth. Finally looking at the jutting balance sheet. the chief concern was that after the add-on of the loan and new equipment that hard currency was still in excess and was non a shortage. Through all the estimated values hard currency has been shown to in fact be in excess and there are no blazing warning marks to take us to believe that Clark Carriers is non in the fiscal place to manage the debt. Due to all the analysis above and explained here my determination is to allow Clark Carriers the loan they have requested of $ 270000.