TO: STEPHANIE ANDERSON
FROM: JOHN KLEIN
DATE: 18 DECEMBER 1994
RE: CREDIT WORTHINESS OF DAWSON STORES
RECOMMENDATION
Upon analyzing the financial statements provided by Mr. John Dawson, Jr. From my analysis of the statements and data, it is my recommendation that Springfield National Bank provide an unsecured $1,000,000 line of credit to the applicant.
ANALYSIS
Dawson Stores Inc. is worthy of the line of credit due to the successes that they have had in the following areas:
1. Solvency
2. Management of Capital
3. Profitability of the Business
4. Increasing Positive Cash Flow
5. Long-Term Capitalization
6. Prior Business History
1. Solvency
Dawson Stores Inc. has proven to be quite solvent in their ability to meet their short-term debt obligations through quality management in the following areas.
• Net Working Capital: As shown in exhibit 1, the net working capital has increased by 5.8 percent over the past four years. Although this number is small, it shows the company is able to consistently meet its short-term debt obligations. This increase also shows that the risk of the company defaulting on a payment is less likely to occur.
• Current Ratio: The current ratio (exhibit 2) in the four-year span has been decreasing but it is still in the benchmark range for retailers, which is around 1.5-2. This means that the company has had sufficient cash resources to the bills that they need to pay.
• Quick Ratio: From exhibit 3, it can be concluded th ...