Springfield National Bank Case Study

Case 13-5

Springfield National Bank

Prepared by

Michael C Jones

For

Professor C.E. Reese

in partial fulfillment of the requirements for

ACC 770-Managerial Accounting

School of Business

Graduate Studies

St. Thomas University

Miami Gardens, Fla.

Term A7/Fall, 2016

January 23, 2017

Table of Contents

Issues…………………………………………………………………......……………1Facts…………………………………………………………………......……………1

Analysis ……………………………………………………………………………....4

Conclusions …………………………………………………………………………..6

Issues

1. Appraise the recent Financial performance and position of Dawson Stores

2. Conclude whether or not the company is a good credit risk.

Facts

John Dawson is having a discussion with Stefanie Anderson a loan officer at Springfield National Bank (“SNB”). JD has been a deposit customer for year at SNB and now they want to obtain a line of credit for $1,000,000 dollars. He then furnished her with information so she could determine if his company was a good credit risk.

Analysis

A liquidity ratio of 2 is considered indicative of adequate liquidity. The current ratio here is 1.67 A Acid Ratio of 1 is considered normal but is deteriorating over the 4 year span. The conclusion is that the company has relatively weak liquidity.

The Return on Assets lets a firm evaluate how well it has been spending its money. Since we can see that over the four year period it has increased the firm is using its funds better.

Return on Equity matters a great deal to current stakeholder and to would be prospective investors. This is because it relates to earnings to owner’s investments. The average ROE (“Return on Equity”) for most investment companies is around 7% - 10%. In this case example, we can see that ROE has increased from 8% to 14%. The principle reason for this is the firm’s debt financing pattern.  

Next, we consider how leveraged the company is, a company that over leveraged is definitely not a good credit risk. Leverage means using given rescources in a way that the potential outcome is magnified. This typically means taking out loans or agreing to stock options that may have a high cost to the firm. It is expressed as total assets times the shareholders equity. The leverage ration has been almost constant over the four years shown. This is evidence that the company has been using the same amount of shareholders equity on assets.