Case Analysis on Lobo Mill Products Company

Xavier University – Ateneo de Cagayan

School of Business and Management

Department of Business Administration

Case Analysis on Lobo Mill Products Company

Submitted by:

Abad Jude Harvey

Abuga, Nikki Winslet

Amila, Kareen Chris

Bucio, Fatima

Catipay, Darlene

Dango, Mark Gil

Gannaban, Alden Mae

Pahuyo, Cyra Elloise

Submitted to:

Ms Deaza Mae Pabatao

Background of the Case

•  Mr Enrique (Harry) Lobo
• Most of the profits were retained in the business.
• The firm had borrowed nearly $125,000 from South Valley State Bank in Albuquerque, New Mexico, at the beggining of 1998 but found that its cash shortage emerge again a month or so later.
• Mr Lobo and a partner named Mr Andrew Murphy
• He bought out Mr Murphy in 1994 and started again as a sole proprietor.
• Mr Lobo competed vigorously on price by watching operating expenses and by making quantity purchases at large savings.
• The bank special attention to the firms debt ratio and current ratio.
• The rate of inventory turnover was high and losses on bad debts in past years have been quite small.

Point of View

• The Credit Investigator/Analysts

Problem

• Mr Lobo’s sluggish liquidity of his financials and his increasing of inventories and liabilities. They financed or leveraged their operations more on debts.

Objective

• To whether accept or reject the loan request of Mr Lobo.
• To lessen his debts
• To shorten the payable period
• To sell a 75% of their inventories.

Alternative Course of Actions

1. Accept the 100% amount of loan request of Mr Lobo, and make it sure that he can pay within the deal period.

Advantages: Mr Lobo will get the amount he want, and new client on the part of the loan company.

Disadvantages: There’s a chance that Mr Lobo will be default and maturity risk on the part of the loan company.

1. Accept the 50% of the loan of Mr Lobo.

Advantages: compared to the full amount of his request it is much lower, lower to collect, bigger chance that the loan company would be paid at the deal period.

Disadvantages: there’s a chance that Mr Lobo will pullout from his request, also the loan company will lose a client.

1. Accept the 100% amount of loan request of Mr Lobo with a higher interest rate.

Advantages: more profit on the part of the loan company, Mr Lobo will get his desired amount of loan.

Disadvantages: There’s a chance that Mr Lobo will be default and pullout his loan request because of higher interest rate, and maturity risk on the part of the loan company.