CFI CBCA Account Monitoring and Warning Signs Questions And Answers Already Passed!!

Developing an Action Plan Consider the following when developing an action plan to address the root problem: - Working Together Is the client open to working together to resolve the problem? Restructure the Loan Is there an option to restructure the loan in a way that will help alleviate repayment pressures? Strategies Will the client accept strategies such as using a cash flow budget and reducing operating costs, including a reduction in salary? Account Monitoring and Warning Signs Identify Early Warning Signs Course Objectives - -Identify common warning signs that a company has financial difficulties -Apply quantitative models to predict if companies will run into financial difficulty -Understand how to deal with problem accounts Identifying Warning Signs Session Objectives - -Identify common warning signs that a company has financial difficulties - Understand symptoms and causes of corporate decline Annual Credit Review Process An annual review is typically performed using the following components: - 1. Financial Statement Review• Comparative analysis • Working capital analysis • Cash flow analysis • Financial covenant analysis 2. Security Review • Account receivables • Inventory • Equipment • Real estate • Personal guarantees & covenants 3. Management Review • Change in management structure • Decision making abilities • Budget & results monitoring 4. Business Review • Opportunities • Threat • Capacity Identify Warning Signs Root Causes and Impact - Root Causes • Low staff morale and poor working conditions • Loss of a key customer • Weak credit controls Impact• Increasing staff turnover • Declining sales and profitability • Increasing accounts receivable and bad debt write-offs The most common warning signs are deteriorating financial and non-financial indicators: - financial indicators: -Declining profitability (look for changes in operating profits and profit margins) -Decreasing sales volume (look for sales volumes after adjusting for inflation) -Increased leverage / gearing (look for increases in debt funding) -Decreased liquidity (look at changes in the current ratio or the quick ratio) -Reduced / increased dividends (look for changes in dividend or other shareholding payments) non-financial indicators: -Delays in reporting (look for unusual delays in publishing financial statements) -Poor management skills (does management deliver what it promises?) -Management changes (look for unusual or rapid turnover of senior managers) -Declining market share (look at changes in the market in which the company operates) -Poor planning procedures (including a lack of strategic thinking) Principle Causes of Decline - Poor Management ; Inadequate Financial Control -Adverse Commodity Prices -Competition -Big Projects -Overtrading -Financial Policy -Changes in Market Demand -Acquisitions -Marketing failureLeading Causes of Decline In a study by Stuart Slatter of 40 declining listed companies, two causes occurred twice as frequently as all other causes of decline. - Poor management and Inadequate financial control