Lecture 10 Problem Accounts & Tutorial Q Upload Version

Problem when a borrower account remains substandard

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Unformatted text preview: roblem Account? Problem When a borrower account remains “substandard” When for a reasonable period of time, say 6 months due to: to: non-payment of principal & interest non-payment failure of borrower to comply with the terms and failure conditions of the credit facility conditions erosion in net worth by 50% due to losses during the erosion previous accounting year previous PROBLEM IDENTIFICATION PROBLEM Causes for Problem(s) Controllable factors Non-controllable factors Warning symptoms/signals of problem(s) Symptoms from financial statements Symptoms from company management Symptoms from bank records CAUSES OF PROBLEMS Inefficient Management autocratic or dictatorial style autocratic Overtrading substantial increase in business beyond substantial the capacity & resources of borrower the substantial increase in creditors & debtors Inadequate equity & working capital to Inadequate support increase in business support Overtrading usually misinterpreted as Overtrading business success business Poor planning & strategy business overtaken by competitors business and now left with out...
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This note was uploaded on 10/19/2012 for the course FINANCE 20873 taught by Professor Mavis during the Spring '12 term at École Polytechnique.

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