Question 1Singapore Electronics is a company engaged in the manufacturing and supply of computers,electronics, smart phones and laptops components. The company is currently experiencingliquidity crisis in its day to day operations as their $900,000.00 overdraft limits from their bankis always exceeded due to the recent growth in their operations. To effectively run the companyoperations the company believes they require an increase in their overdraft limit and hasapproached another bank. The requirement therefore is a detailed analysis of the company’sbusiness to ascertain if an increase in the overdraft limit is required.The company’s management account shows that revenue has increased from 31st December2016 by $310,000.00. This indicates growth in business. The bank does a vertical analysis usingthe abstracts of revenue analysis and balance sheet. This shows that the overdraft of the companyincreased by 30th June 2017 showing the company needs more liquidity and in the company’sview, an increased overdraft limit as shown in the table below.31st december 2016Percentage30th june 2017Percentage950000100%1260000100%71000075%96000076%31st december 2016Percentage30th june 2017Percentage48000055.17%71000055.91%39000044.83%56000044.09%870000100.00%1270000100.00%27000031.03%32000027.35%60000068.97%85000072.65%870000100.00%1170000100%StockQuestion 1Statement of Vertical Common Size analysis of Singapore Electronics(Extracts of Profit and loss A/c)ParticularsRevenuesCost of Sales(Extracts of Balanced Sheet)Current AssetsDebtorsTotalCurrent LiabilitiesCreditorsOverdraftTotalInformation about rolling period is given. Rolling period means the time which is taken to realizethe cash. It shows the period and how many times cash flows are generated in a business. In this2case, the information of rolling period of debtors, creditors and stocks are given. Respectiveturnover ratios can be calculated and used in determining the liquidity position of the company. As the business is growing, the bank will accept the company’s proposal to increase the overdraftlimit for liquidity requirements. However, suggestions can be made that if Singapore Electronicsreduces the number of days provided to debtors to pay up on credit sales and improve their stockturnover ratio then the company will not be facing liquidity crisis.Question 2Loan facility is a line of credit which any business or individual can take for the purpose offinancing business or personal needs from a credit providing institutions. Normally most of thecredit taken comes from the banks (Ivashina, Scharfstein & Stein 2015).In the case of XYZ Technology Ltd – XYZ, they have applied for a loan in a bank through MrAyobola.Loans approval by banks to a borrower depends on certain factors. These factors are the credithistory of the borrower, their financial position, Credit history, business projection and cash flowanalysis, collateral available, the character of the borrower and his financial position. Otherdocuments such as the business financial statements, income tax returns, strategic plan of howthe loan will be used are also needed.Loan facilities processing requires the bank to review the borrower’s credit history be it acompany or an individual. In the case study it is mentioned that XYZ is a customer of the bankand has applied for loan. It is assumed that the company has a good credit history and trackrecords with the bank. The bank will then check the reason for taking the loan and whether the amount mentioned isrequired. Clients cash flow statement is required in order to determine whether the company canmeet the repayment of the loan when the time comes (Finnerty, 2013). As per the case study,3there is no mention of cash flow or reason for loan therefore an assumption is made that cashflow is appropriate.Collateral securities is required to minimize the risk which the lender undertakes when he lendscredit. In the given case study, the director of XYZ who looks after financial aspects of thecompany has given a personal guarantee on behalf of the company which is acceptable inprocessing the loan.Bank provides loan to individual persons and company considering character and track record. Inthe given case study’s a guarantee is given by the director an indication of good faith and strongcharacter.The borrower needs to submit necessary documents such as financial statement, business plans touse the loan, collateral securities to support the decision by the bank to provide the loan to XYZ.Question 2bSecurities are financial instruments that can easily be traded in stock market. These securitiesinclude bonds, shares and convertible debentures. These are used by companies to raise fundseither using equity shares or debentures. When such securities are listed in any security marketthen it is known as listed securities (Cox, Hillman & Langevoort, 2016).Some advantages of such securities are the ease to trade and transfer them in the stock market,their values are published on the market floor which forester decision making. They can be usedas collateral and a source of income as they earn dividend or interest for their holders a halfyearly basis or yearly basis (Yuan, 2015)Question 3a.Right of Lien:A lien is a creditor’s right to retain possession of the debtor’s property (movable) until the debtorpays what he or she owes the creditor. The party holding the lien is called the lienor/lienholderwhile the debtor is called the lienee.4There are two major types of Lien namely:a. A general lien is a lien over property that can be retained until payment of all amountsthat the debtor owes the creditor, not just the debt to which the property relates.b. A particular lien is a lien over property that can be retained only until the debtor pays aparticular debt due in respect of that property. The courts favour particular liens as beingequitable between debtor and creditor.A lien is a type of encumbrance attached to the property and not the Person.Question 3b.Testate Succession:Testate Succession is the distribution of property or estate of the deceased through a valid will. Awill can be defined as a legal document that regulates what happens to a person’s estate (assetsand liabilities) after his or her death.A will is a very important document in that it determines and regulates the affairs of a deceasedperson. However, where a will is poorly drafted or not executed with the assistance of aprofessional, it may be unenforceable and / or legally invalid, which in turn will result in theestate being administered intestate – as if you never executed a will in the first place. (NicoleneS, 2010)Three conditions must be in existence before rules of law concerning testate succession applynamely Death, Survivorship and Solvency. The advantages of having a Will are that theyRegulates and stipulates who inherits from the estate, help determines how the deceased’s debtsare to be settled, nominates a guardian for his or her minor children, creates a will trust to benefitcertain persons or for the benefit maintenance of his or her minor children (beneficiaries),Formulates and integrates estate planning and the administration of the deceased estate andNominates an executor(s).5Question 3c.Cash flow reports:The Cash flow statement is considered one of the most important financial statement from thepoint of view of information for investors and bankers. The cash flow statement provides thedetails of not only operating, financing and investment activities but it also provides the detailsof outcome from each activity in terms of real cash inflow or outflow. The profit and lossaccount at the same time only provides information about the operating activities output, whichis on accrual basis (Rohit K. S., Ashit S. 2015). Cash flow is the simplest possible concept whichcan be defined as the difference between money received and money paid out. But in order to getaccounting income, the figures are adjusted in two important ways;a. To show income as it is earned not when collected (Cash basis)b. To categorise cash outflows into current expenses and capital expenses.It is very important that a business is able to turn its profits into cash. Cash flow statementprovides the details of the output from all kinds of business activities of an entity. Investors suchas banks use the relationship between net income (revenues minus expenses) and operating cashflows (cash flows from revenue and expense activities) to forecast a company's futureprofitability. The comparison of operating cash flows and investing cash flows help to assess acompany's ability to repay debt. Financing activities provide information to investors about thedifferent sources of external financing of the company. (Rohit K. S., Ashit S. 2015)Question 3d.Credit Reference Agency:A Credit Reference Agency (CRA) according to the Consumer Credit Act 1974 (section 145(8))is defined as a person carrying on a business comprising the furnishing of persons withinformation relevant to the financial standing of individuals, being information collected by theagency for that purpose. CRA’s do not make lending decisions but it is left to the users of thepublic and credit account information to decide.The law allows CRAs to record information on an individual's credit worthiness, which can thenbe supplied to banks, building societies, retailers or other providers of credit. All CRAs holdsimilar information about individuals. CRAs information fall into two main categories – public6information and credit account information. These information is retained by the CRA for sixyears which allows the lenders check for decision making purposes.Question 4a.A franchise can be defined as the granting of a license by one person who is called the franchisorto another person called the franchisee that entitles the franchisee to trade under thetrademark/trade name of the franchisor. Franchising is a situation where a successful businessformat is replicated which is usually documented in a manual by a franchiser who must haveestablished systems and procedures with a track record of success.The franchiser is paid an initial sum by the franchisee and a fee for the license based onfranchisees business turnover. The franchisor provides the franchisee with a complete, provenbusiness concept.In the case of Penny Pincher, it is advisable she goes into a franchise considering the fact thatdespite her accumulating a reasonable level of her savings she still lacks the funding to start upher own business and also the doubt that starting her own business from scratch might last longand grow. According to (Udendeh G., 2017) Franchising is often described as a joint venturebetween a franchiser, usually a well-established company and a franchisee. The franchisee mayhave been an ex-staff of the former just like Penny Pincher, wishing to take advantage of thelatter’s proven business model. She can do this by providing similar services under a separatemanagement. The finance element is the deep discount she may enjoy from the, erstwhile,employer. All she need do to become a franchisee is to pay an initial fee and a managementservice fee for the license and she has the benefits of her own business while enjoying amanagement or team type of environment.Some benefits of her being a franchisee include the fact that there would not be any need to comeup with a new idea, a good franchisor will assist in training programme in sales and businessskills, franchisor will provide details of competitors, assist in problem solving, and many otherbenefits. If she wants to start up a normal business by herself, apart from the fact that her savingsis not adequate, it will take years to achieve all the benefits stated above.It should be noted that even though she will own and operate the business under a franchise, thefranchisor still retains control over the way in which the products and services are marketed andsold.7Question 4b.Liquidation can be defined as a process whereby a limited company is terminated. A limitedcompany is a separate legal entity from that of its individual shareholders. Unlike that ofpartnership or individual, a limited company cannot be terminated by death. A company mayhave its existence terminated by Winding up, struck off the register of companies as beingdefunct and Dissolved by order of the courtA liquidator can be defined as a person who winds up a company. A liquidator must have norelationship with the company, not bankrupts and must be of good conduct. Some Duties ofliquidators includes taking possession, list the debtors, value owed and pay as stated by lawwhile any balance is returned in line with entitlement to members, investigate the company’saffairs, Sell the company’s assets, Report any suspected criminal offence by the company.When a voluntary liquidation is completed, the liquidator must do a report, call a generalmeeting of all stakeholders deliver their report to the Companies Registration Office (CRO).In a voluntary liquidation, the company will no longer exist three months after the final returnsare filed.Liquidators have power to act on behalf of the company to sell, process or mortgage thecompany’s assets. They can also appoint agents, seek Court orders to have company directorsexamined, property returned to the company and take other measures to assist the liquidation.Question 5.Credit risk in simple terms is the probability of loss due to the borrowers failure to pay on anytype of debt owed to an institution. Credit Risk Management can be said to refer to institutionaland supervisory measures of parameters put in place to mitigate the adverse effect credit riskmay have on the safety and soundness of the individual banking institution and financial systemas a whole. (Ogunleye, 2001). Credit risk management is important to ensure that a companydoes not incur too much loss on individuals’ failure to pay up their debts.8The key elements in analysis and assessment process are market or industry risk assessment,business risk assessment, financial risk assessment and the fourth key element isDocumentation and pricing for risk. With the market or industry risk assessment the industrythe customer seeking the loan belongs to is evaluated. The cost structure is considered and theperformance of the customer with respect to the industry is classified as Low, Medium or HighRisk. In the business risk assessment the business model of the customer is investigated and theprofitmaking strategy is evaluated as it relates to the product of the business itself consideringthe potential of the business to generate revenue. During the financial risk assessment the riskinvolved in operating the customers business is considered and the asset that backs the risk isassessed evaluating the likelihood of incurring a bad debt. The fourth key element isdocumentation and pricing for risk where the document the customer brings to the table isexamined should in case the customer defaults on the loan repayment.