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Finance Case Study (Suggestions required)
05-23-2010, 06:29 AM
Post: #1
Finance Case Study (Suggestions required)
You are advance (credit) officer in ABC bank Ltd. Arshad Lateef owns two successful restaurants, each of which has applied to your bank for a Rs. 250,000 one year loan for the purpose of opening a second location. Condensed balance sheet for the two business entities are given below

<b> McDonald's
BALANCE SHEET
As on December, 1999</b>

Current Assets 75000
Fixed Assets 300,000
_______
375,000
_______

Current Liabilities 30,000
Long-term Liabilities 200,000
Shares Capital 100,000
Retained Earnings 45,000

_______
375,000
_______




<b> KFC
BALANCE SHEET
As on December, 1999</b>

Current Assets 24,000
Fixed Assets 301,000

_______
325,000
_______

Current Liabilities 30,000
Long-term Liabilities 165,000
Capital Mr. Arshad Latif
& Retained Earnings 130,000

________
325,000
________


Both restaurant are popular and have been successful over the last several years. MCDONALD'S has been slightly more profitable, but the operating results for the two businesses have been quite similar. You think that either restaurant's second location should be successful. On the other hand, you know that restaurant are a very "faddish (Highly Uncertain)" business, and that their popularity and profitability can change very quickly.
Mr. Arshad is one of the wealthiest people in Karachi, he made a fortune-estimated at more than Rs. 2 million as the founder of Mirco Time, a highly successful computer software company. Arshad now is retired and spends most of his time at Second Life, his 50,000 acre cattle ranch. Both of his restaurants are run by experienced professional Managers.

<b><font size="2">Instructions</font id="size2"></b>
<b>a</b>. Compute the current ratio and net working capital of each business.
<b>b.</b> Based upon the information provided in this case, which of these business do you consider to be the better credit risk? Explain briefly.
<b>c. </b>What simple measure might you insist upon which would make the other business as good a credit risk as the one you identified in part b? Explain?
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