Springfield National Bank

Essay by blipblipUniversity, Master'sA+, September 2006

download word file, 7 pages 5.0

I. EXECUTIVE SUMMARY

Financial statement analysis is an important process in deciding to grant or deny credit to prospective debtor.

Springfield National Bank (SNB) reviewing the request of Dawson Store's Inc., for an unsecured credit line of one million dollars. Horizontal and vertical analysis of the given case started with review of the basic financial statements of the Dawson Store, Inc., covering the period beginning January 1, 2001, and ending December 31, 2004, with focus on the profitability and liquidity of the debtor.

Results revealed that although the business was able to generate average profits, these were not fully realized into cash, due to its inability to collect its receivables, thereby making it a high credit risk.

II. CASE CONTEXT

John Dawson, Jr., president of Dawson Stores, Inc., is requesting for a credit line of $1,000,000 from Springfield National Bank (SNB). The credit line is requested to be available for one (1) year on an unsecured basis.

John Dawson provided the company's financial statements for the last four years for the review of Springfield National Bank. Likewise, the bank obtained reports of previous contacts by bank personnel with Dawson Stores, Inc., which it has reviewed for the approval/disapproval of the credit line request.

III. PROBLEM DEFINITION

Springfield National Bank must decide whether it would extend a credit line to Dawson Stores, Inc. for one year. The decision rests on the following given facts:

1. John Dawson would like to obtain the $1,000,000 credit line on an unsecured basis;

2. The credit line shall cover for short-term needs;

3. Dawson Stores, Inc. had not used bank credit in the last ten years.

IV. FRAMEWORK

Horizontal and vertical analysis of the given case started with review of the basic financial statements of the Dawson Store, Inc., covering the period beginning January 1,