Fifth Third Bank Case Presentation

1
Fifth Third Bank Case Presentation

• By
• Sean Griffin
• Claudia Tapia
• Shuanghui Lu

2
An introduction of the problem

• The customer A wholesaler of campers and camping
  vehicles in North-west Indiana.
• The customer status long-time customer
• The customers purpose Applying for a line of
  credit

3
An introduction of the problem

• Line of credit
• -- an informal agreement between the bank and the
  borrower in which the bank agree to lend a
  specified maximum amount of fund to the borrower
  during a certain period.

4
An introduction of the problem

• The customers information
• -Excess inventory
• -Delinquent with payments but paid in full for
  all term-debt on inventory purchase
• -owns a property of site without outstanding
  mortgage
  

5
Required Information

• Financial Statements
• Balance Sheet
• Assets Liabilities owners equity
• Income Statement
• Statement of Cash of Flows
• Methods of Valuing Inventory
• LIFO
• FIFO

6
Balance Sheet

• Assets
• Current assets (cash, accounts receivable,
  inventory)
• Fixed assets (land, building, equipment)
• Intangible assets (patents, trademark, goodwill)
• Liabilities
• Current liabilities (account payables, salaries,
  taxes)
• Long-term liabilities (notes payable, bonds
  payable)
• Owners equity (common stocks, retained earnings)

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Balance Sheet

• What information does the balance sheet provide?
• Firms financial condition at a given time.
• Available resources
• Inventory is a current asset
• Property of the site is a fixed asset
• Loans from banks are liabilities

8
Income Statement

• Revenue (sales, other sources)
• - Cost of goods sold (purchases, freight,
  inventory)
• Gross profit (gross margin)
• - Operating expenses (selling expenses, gral.
  expenses)
• Net income before taxes
• - Taxes (X)
• Net income or loss

9
Income Statement

• What information does the income statement
  provide?
• Information of resources from operating
  activities
• Cost of goods sold
• Cost of the beginning inventory
• Cost of the purchase new inventory
• Cost of the ending inventory

10
Statement of Cash Flows

• Operating activities
• Cash received, cash paid, interest paid, income
  tax paid, interest and dividends received.
• Investing activities
• Proceeds from sale of plants assets, payments for
  purchase of equipment.
• Financing activities
• Proceeds from issuance of short-term debt,
  payment of long-term debt and dividends.

11
Statement of Cash Flows

• What information does the statement of cash flows
  provide?
• Operating activities
• Cash received from customers
• Cash paid to suppliers (inventory)
• Financing activities
• Proceeds from issuance of short-term debt
• Payments of long-term debt
• Particularly helpful to seasonal businesses

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Methods of Valuing Inventory
FIFO First in, first out LIFO Last
in, first out
13
Methods of Valuing Inventory

• What information do the methods of valuing
  inventory provide?
• Firms financial performance
• Firms cost of goods sold
• What was the cost of the item when it was sold?
• The customer is showing excess of inventory
• Which methods my customer is using?

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Analysis of the information

• Liquidity ratio analysis
• The inventory turnover ratio analysis
• Working capital analysis

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Liquidity ratio analysis

• Liquidity ratio shows the relationship of a
  firms cash and other current assets to its
  current liabilities.
• The liquidity ratio usually includes the current
  ratio and quick ratio.

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Current ratio analysis

• Current ratio is defined as dividing current
  assets by current liabilities.

BACK
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Quick ratio analysis

• Quick ratio is defined as current assets minus
  inventory and then dividing by current
  liabilities.

BACK
18
The inventory turnover ratio analysis

• Inventory turnover ratio is calculated by
  dividing sales by inventories.

BACK
19
Working capital analysis

• Working capital is a firms investment in
  short-term assets, such like cash, marketable
  securities, inventory, and accounts receivable.

20
Options to the Customer

• Issue line of credit
• Issue line of credit with a collateral
• Using revolving line of credit
• Flexible rate loan
• Reject the application

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Options Explained

• Line of credit
• Money can be withdrawn anytime as long as
  cumulative withdrawals do not exceed limit
• Paid back with interest according to agreement
• Line of credit with collateral
• Similar to line of credit only some property or
  asset is used as a guarantee

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Options Explained

• Revolving line of credit
• Money is loaned periodically and must be paid
  back before more money is loaned
• Interest rate is negotiated at period turnover
  or at the beginning of the loan

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Options Explained

• Flexible rate loan
• Interest rates will vary seasonally
• Reject loan

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The Recommendation

• The line of credit with collateral
• The collateral Property
• Limit loan amount based on inventory
• Payment plan

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End of the Presentation
Thank you!