Scribd
Upload
89 views1 page

2ndQExam Finance PDF

The document provides information about Woodpecker Inc., a furniture business, and Bumble Bubble Laundry Shop, which is applying for a bank loan. For Woodpecker Inc., the summary calculates the business's operating cycle as 60 days and cash conversion cycle as 45 days. It asks how management might reduce the cash conversion cycle. For Bumble Bubble Laundry Shop, the summary notes the business is applying for a PHP500,000 loan to open a second branch. It provides financial information and asks to evaluate the loan application using the 5 C's of credit framework.

Uploaded by

Christian Zebua
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
89 views1 page

2ndQExam Finance PDF

The document provides information about Woodpecker Inc., a furniture business, and Bumble Bubble Laundry Shop, which is applying for a bank loan. For Woodpecker Inc., the summary calculates the business's operating cycle as 60 days and cash conversion cycle as 45 days. It asks how management might reduce the cash conversion cycle. For Bumble Bubble Laundry Shop, the summary notes the business is applying for a PHP500,000 loan to open a second branch. It provides financial information and asks to evaluate the loan application using the 5 C's of credit framework.

Uploaded by

Christian Zebua
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

1. Read the scenario and answer the problems/question that follow.

Woodpecker Inc. is a furniture business located in Negros Oriental and now run by Mr. Bruno Copico
who just took over the position from his father who just retired. The business has been running satisfactorily
but very little growth for over 60 years. It has significant number of long time clients and has quite a good
reputation. It is located in a remote area far off from the city. Its nearest client is approximately 30 km away.
However, the business has been operating still in a traditional model for the longest time, i.e., furniture works
are still done by-hands 100%, orders and purchases are still recorded and monitored manually on paper and
payment collections are performed by three long time collectors through client visits via motorcycle to collect
cash. Mr. Bruno Copico sees these as opportunity for growth, however.
One of Mr. Copico’s specific concerns is how to manage cash efficiently. On the average, inventories
have an age of 60 days and accounts receivable are collected in 45 days. Accounts payable are paid
approximately 20 days after they arise. The business has annual sales of about PHP10 million. Assume there is
no difference in the investment per peso of sales in inventory, receivables, and payables and that there is a
360-day year.

a. Calculate the business’ operating cycle. Show solution. (5 pts.)


b. Calculate the business’ cash conversion cycle. (5 pts.)
c. Discuss how management might be able to reduce the cash conversion cycle. (10 pts.)

2. You are a bank loans officer. Evaluate Bumble Bubble Laundry Shop whether you are to approve its loan
application using the 5 C’s of Credit. (30 pts.)

Bumble Bubble Laundry Shop lone shop has been operating for three years. The owner plans to open
another branch in 2021 and in order to do this, the owner applies for a bank loan worth PHP500,000. The
business had been rejected twice of applications before due to poor credit records. The current laundry shop
is located in a 50 sqm commercial lot valued at PHP400,000. Below is an excerpt of the business’ consolidated
audited financial statements:

As of 31Dec. 2020
As of 31 Dec. 2018 As of 31Dec. 2019
(Pandemic)
Current Assets 500,000 550,000 400,000
Long-term Assets 200,000 300,000 250,000
Short-term Liability 100,000 200,000 250,000
Long-term Liability 200,000 200,000 300,000
Equity 400,000 450,000 100,000
Net Income 300,000 350,000 200,000
Cash Flow from Operations 200,000 250,000 100,000

Character (5 pts.)

Capacity (5 pts.)

Collateral (5 pts.)

Capital (5 pts.)

Condition (5 pts.)

Decision (Accept/Reject,
Explain) (10 pts.)

------ GOOD LUCK ------

You might also like