The account manager at the Canadian Commercial Bank (CCB) in Barron, Ontario, reviewed his latest loan request. The co-founder of Druthers Forming Limited (Druthers), a long-time CCB customer, was requesting a $350,000 loan to construct a new building to house Druthers’ existing operations. Construction was already well underway. The account manager also noted that Druthers was currently operating without a line of credit and he wondered whether the business could generate enough cash to cover expenses, including the new loan payments. He had one week to decide whether to lend funds and provide supporting rationale for his decision. To aid in his decision, the account manager began by assessing financial performance using statements of cash flows and ratio analysis; financial statement projection; and consideration of working capital requirements, including performing a sensitivity analysis on the days of accounts receivable, inventory and/or accounts payable.
