Credit and Financial Analysis - Assignment Example

A credit operation should do everything to establish a "suitable credit basis" upon which business with "every customer that the sales department desires to have purchase our products." The way I design your terms and policies should protect me from potential lawsuits and keep my operation steady, but should simultaneously work to get me business. Bad debts and losses are part of the job, but if I don't extend credit, I also can't make anything from it (Jacob, 64). Answer # 2. Every business that extends credit has had to deal with customers filing bankruptcy.

The debtor has the benefit of an "automatic stay" immediately upon filing a bankruptcy petition. That stops you from taking any further action to try to collect the debt unless or until the bankruptcy court decides to the contrary. In that case I would be better off if I were shipping on a consignment basis, in that way I would seize any further actions and that will eventually save me from a big loss, which could have incurred in the other way. Question # 3. Two companies, A and B, differ in the nature of their business only in the ways that are mentioned below.

Indicate which company is likely to be the better credit risk by writing "A" or "B" next to each of the following and explain: "A" Where Credit risk is involved, some consideration also involves local economy but more precisely the credit history of the company itself irrespective of its location. A company you are lending credit can have office in both the location. Both of them are the largest city of their state. But certainly Philadelphia is much older and bigger than Omaha. Company located in better credit risk would be in A as its local economy favors it.

Company A's economy is heavily based upon manufacturing, refining, food, and financial services where as B's local economy is based on agriculture.b.) Company A manufactures women's hats; Company B manufactures women's sportswear - sweater, skits, blouses, etc. "B". Definitely Company B, as its product lines are broad and much more established. From their broad product line, their profits would be much higher than company A.c.) Company A manufacturers only against confirmed orders while company B produces inventory before receiving any orders. "A". Company A would be at better risk as they are working on profit based manufacturing.

They will have no risk of excessive inventory in their store and subsequently no loss on manufactured product.d.) Company A plans to produce automobiles and B, auto accessories. Both have starting capital of $10,000,000.00 "A" because Company's A turnover will be much higher than company B.e.) Company A manufactures an unbranded product. Company B makes the same product under an advertised brand name. "B". Company that produce branded products are reliable and well established.Question # 4.

In each of the following situations, indicate whether your