In: Finance
Mattel Toy Manufacturing has an outstanding $11 million loan with Wells Fargo Bank for the current year. As required in the loan agreement, Mattel reports selected data items to the bank each month. Based on the following information, is there any indication of a developing problem loan? About what dimensions of the firm’s performance should Wells Fargo Bank be concerned?
One |
Two |
Three |
Four |
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Current |
Month |
Months |
Months |
Months |
|
Month |
Ago |
Ago |
Ago |
Ago |
|
Cash account (millions of dollars) |
$33 |
$57 |
$51 |
$44 |
$43 |
Projected sales (millions of dollars) |
$298 |
$295 |
$294 |
$291 |
$288 |
Stock price per share |
|||||
(monthly average) |
$6.60 |
$6.50 |
$6.40 |
$6.25 |
$6.50 |
Capital structure (equity/debt ratio |
|||||
in percent) |
32.8% |
33.9% |
34.6% |
34.9% |
35.7% |
Liquidity ratio (current assets/ |
|||||
current liabilities) |
1.10x |
1.23x |
1.35x |
1.39x |
1.25x |
Earnings before interest and taxes |
|||||
(EBIT; in millions of dollars) |
$15 |
$14 |
$13 |
$11 |
$13 |
Return on assets (ROA; percent) |
3.32% |
3.25% |
2.98% |
3.13% |
3.11% |
Sales revenue (millions of dollars) |
$290 |
$289 |
$290 |
$289 |
$287 |
Answer: While analyzing the firm's performance with the help of Ratios, we get these points:
Conclusion- Company has good liquidity position, it has enough cash and its financial health is sound. Company is able to repay the loan. Wells Fargo should be concerned about firm's Asset quality because it is generating lower return. Company's investment in assets is only fruitful when assets are able to generate good returns. Wells Fargo should also focus on the firm's EBIT.