The Here Today Corporation Has Applied to Your Bank for a Loan

question 3

Essay

The Here Today Corporation has applied to your bank for a loan. You have their financial statements and the revised Z-score model of:
Z = 6.56 (Net Working Capital/Total Assets) + 3.26 (Accumulated Retained Earnings/Total Assets) +6.72 (EBIT/Total Assets) + 1.05 (Book Value of Equity/Total Liabilities) where: Z < 1.23 predicts bankruptcy. A Z score between 1.23 and 2.90 indicates gray area. A Z score greater than 2.90 indicates no bankruptcy. From the financial statements you gathered net working capital of €237,500; accumulated retained earnings of €120,000; book value of equity of €950,000; total assets of €4,750,000; EBIT of €261,250; and total liabilities of €3,800,000. Should the bank lend to Here Today?

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Definitions:

Insurance Policy

A contract between an insurance company and the policyholder which outlines the terms, coverage, and conditions under which the insurer agrees to compensate the insured for losses.

Impartial

Not biased, fair; not favoring one side over another.

Insurable Interest

Insurable Interest is a principle requiring that a person purchasing insurance has a stake in the safety and protection of the insured object or individual against loss or damage.

Fraud

Fraud refers to wrongful or criminal deception intended to result in financial or personal gain.