We analyse the information that we use CAMPARI (Character, Ability to pay, Margin, Purpose, Amount, Repayment and Insurance / Security) to present with. After that we will consider that have any keys will affect our decision to make a decision. Character Tom (55) and Mavis (49) is a couple that has not got children. Tom is a school teacher and his wife has been a chef at a local restaurant for the past nine years. They have banked with us for over 20 years, and they have several accounts with us. All of the in accounts are run very well.
On the other hand, they have just completed repayment of a car loan for 7500 over five years and they only have 6000 mortgage to be fully repay within 5 years. Their home is value at 95000. Mrs Leek has been a chef at for nine years. Assuming that in her career she had experience in preparing vegetarian food, she wills ideal person to run the kitchen of restaurant. However we have to take into consideration her track record. Another possible matter of concern in their inexperience in running their business to test their ability we can. For example, we ask them to provide the cash flow forecast for next three to five years.
We also have to ask them about their health, if they run a own business they have spend most of the time on it, they can manage it or not. They wish to borrow 35000. They can find 50000 from their own resources. We can see that they only have 29000 that they can spend. That means that they have to find additional 21000, and this is a major concern foe us, as we are not sure where is money is coming from. They may borrow some money from their friends or another bank. If the enterprise fails we have to make sure that our bank is the first in the line of creditors.
On the balance sheet the restaurant worth 50000 so if it is sold for this amount they can use 29000 to instead of i?? 35000. We have to think about that they borrow 35000. Another concern for us is the amount they borrowing is not high enough to cover the working capital expenses. On the other hand, they have to get 13500 to run the business for day to day basic, if they have not got any stocks and cash in the restaurant. So we have to ask them, have they got extra cash to buy stock and run the business, and if not where are they going to get it.
This ratio is a particular important indicator of profitability, it shows the profit potential before charging expenses. This means that every 1 of sales gives a 52. 5p gross profit in 2000. If the percentage falls this may indicate that stock is being damaged or stolen. Alternatively, it could mean that the cost of stock is rising and the increase has not been passed on to the consumer. We have to use the figure to compare with another restaurants to find out the result. Net margin is net profit before interest & tax / sales x 100 equal 20. 8%.
Likewise in 99 is 18. 1%, in 98 is 2. 9%. This ratio is to measure of performance achieved after deduction of expenses. The ratio can vary considerably between types of business. We have to use the figure to compare with another restaurants. We can see that the ratio is rising over three years. In 99, the net margin increased obviously because the sale was increased. On the other hand, we have to ask them what is the location of the restaurant.
Also the restaurant is a special restaurant in their place or not. Although more information is needed (e. g.forecast and cash flow forecast) on initial analysis their restaurant looks good and potentially can do better so even though Leeks are paying over the book value of restaurant. For example, for reputation this is not justifiable, as the business will potentially grow. Repayment We have to ask them to provide a business plan for further 3 to 5 years and any repayment proposals. Leeks have to show that they have surplus funds to cover repayment. Also Leeks have to provide the cash flow forecast. We can see the business will make profit or loss in next year.
We can see that the business is making profit over three years. But next year the rent will be increased to i?? 18000, they have to pay 6000 extra. On the other hand they need to employ one person (Salary i?? 10000) to help them to run the business. So the expenses will be increased. We have to concern that the profit still can cover all the expenses and repay the loan, and the business is still potential or not. If they borrow 35000 for 10 years and we offer them 6% on interest rate then they have to pay 3710 per year (including the interest). We have to think about that they can afford it or not.