Wollega University

Credit
Credit Analysis
Analysis Review
Review Form
Form

1. Name of the Customer: Ayinalem Shifaraw Beyene

2. Name of the Branch: Bishoftu
3. Date of Receiving Credit Analysis Documents from district CRM: 12/12/2023
4. Type of Business: Retail trade of Agricultural products (DTS) .
Brief Description of the Business: A Sole Proprietor ship was established by the couple
Ayinalem Shifaraw Beyene on 08/012/2006 E.C. The business obtained a license under
Business License No. 04/41066/112/2006 on 08/012/2006 EC.
Is there additional document or information required for decision? If so, state the
type of document or information required. NO.
5. Date of communicating the required document/information to the CRM or the
customer: 12/12/2023
6. Date of receiving the required document or information from the CRM or
customer: 12/12/2023.
State major points regarding the credit request in subject that may help for
making prudent credit decisions: he want to expand the business and replace same
assets for production.
CURRENT REQUEST:
 Term loan of Birr 1,500,000 (One Million Five hundred thousand birr only) for a
period of Four(4) years payable Monthly installment basis.
i. Character and Relationship Risk Analysis
A. Performance and Relationship with our bank.

Type of loan
lending bank Limit Approved Present Balance Expiry Date Status
Siinqee Term Loan 500,000.00 0 27/01/2018 Setteled
B, Relationship with another bank.
As per credit information report obtained from NBE under enquiry ID No 2071461 and
2071463 dated on 27/11/2023 G.C, currently, the applicant and her spouse have the no
credit facilities with others bank.

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Character- Including the tax clearance from Government, the customer has presented
consistent document. This shows that the applicant is discharging its obligation in a good
manner.
Financial Risk Analysis
The following financial statement is captured from the Provisional financial statement
prepared for the year ended from Sane 30/2013,Sane 30/2014and Sane 30/2015 the
Provisional financial statement is undertaken by Asefa Wayecha
BASIS OF OPINION.
UN QUALIFIED OPINION
In our opinion, the financial statements referred and the disclosures in the notes forming
part there of present true & fairly in all material respects, the financial statement of Asefa
Wayecha june 30/2021, june 30/2022, and Dec 30/2023 the result of its operation for
the year then ended in accordance with the accounting policies adopted by the
organization.
Ayinalem Shifaraw Beyene
BALANCE SHEET
FOR THE YEAR --------

Financial Financial Financial

Type of Statement Statement Statement Statement
Date June 30/2021 June30/2022 End of Dec2023
Current Asset
Cash and bank balances 150,000.00 200,000.00 130,000.00
Inventory 560485.60 598170.54 1,850,220.00
Total Current Asset 748,688.60 789,170.54 690485.60
Fixed (Plant Asset) 827275.17 697811.41 653743.67
property, plant and Equipment
Total Fixed (Plant Asset) 827275.17 697811.41 653743.67
Total Asset 1,575,963.77 1,486,981.95 1,344,229.27
Current liability
Taxes Payable 339,099.10 456,116.48 265,760.95
Total current liability 339,099.10 456,116.48 265,760.95
Bank loan
Total Liability 339,099.10 456,116.48 265,760.95
Capital and Reserve 555,680.62 132363.44 533,483.70
Net income/Loss 681,184.05 898502.03 544984.62
Total Capital and Reserve 1,078,468.32 1,030,865.47 1,078,468.32
Total Liability and Capital 1,344,229.27 1,486,981.95 1,575,963.77
Ayinalem Shifaraw Beyene
Income Statement
FOR THE YEAR --------

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Financial Financial Financial

Statement Statement Statement
Date June 30/2021 June30/2022 Dec 30/2023
Income
Sales 3,654,150.00 3,808,245.5 2,210537.36
Cost of sales(Operating Cost) 2,174,033.08 2,063,140.85 1,251,238.12
Gross Profit 1,480,117.81 1,745,104.65 959,298.24
Expenses
General & Administration
expense 459,834.66 390,435.15 148,552.67
Total Expenses 459,834.66 390,435.15 148,552.67
Profit /loss before Tax 1,020,283.15 1,354,618.5 810,745.57
Income Tax Payable 339,099.10 456,116.48 265,760.95
Net Income after tax 681,184.05 898,502.02 544,984.62
Financial Ratios

Date Sane 30/2014 Sane 30/2015

June 30/2021 June 30/2022 Dec 30/2023
Activity ratio 100% 100% 100%
% of CGS/SALES 56.60% 0.59% 0.47%
Profitability
Gross profit margin 33.33% 41.17% 53.18%
operating profit margin 23.02% 25.73% 37.29%
net profit margin 5.69% 10.70% 22.77%
return on asset 0.61% 7.25% 17.65%
return on equity 30.98% 32.24% 38.13%
Liquidity
Current ratio 1.1 1.1 1.1
quick asset ratio 2.979 1.389 1.1
gearing
Debt to asset ratio 1.1 1.1 1.1
overall gearing 0.02 0.44 0.22
Ownership
total equity/total asset 98% 70% 82%
RATIO ANALYSIS
Interpretation of Financial Performance:

1. Profitability

 The grossProfit Ratio of the business is 53.18%which is sufficient tocover

generalAdministration and selling expenses.
 Operating Profit Ratio: 37.29%. This ratio gives the profitability of the business
relative to sales after deducting all the costs of producing and selling the goods which
have been sold. This indicates that the profit generated from the operation of the

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business, which will form the basis for the cash generation to cover interest and principal
repayments on borrowings.
 Net Profit Ratio: 22.77% it gives the profitability of the business after deducting
all costs including interest and tax. This indicates that 0.09% overall efficiency of
the business. This indicate that the net profit ratio of business is indicates good
 Return on Equity: While average ratios, as well as those considered “good” and “bad”,
can vary substantially from sector to sector, a return on equity ratio of 17.69% to 20% is
usually considered good. At 5%, the ratio would be considered low. Return on equity of
the business is 8.04% for the current year,
 Return on Asset: Return on assets indicates the amount of money earned per birr of
assets. Therefore, a higher return on assets value indicates that a business is more
profitable and efficient. The company generates birr 1 in profit for every birr of 43 in
total assets. A ROA of over 5% is generally considered good and over 20% excellent.
Return on Asset of business is 43 for 2014 E.C so it is Excellent.
2. Liquidity
i. Current ratio (4.12): - It is clearly indicating that the short-term obligations of the
business will get the cover by assets of similar maturity. Therefore, the business of
applicant will remain in operation without considering liquidity problem
improvement.

Debt to Asset ratio: - (0.08) of the firm’s assets are financed by debts. Therefore, the
business’s leverage ratio is shows most of the financing is obtained from internal
sources.

Quick asset ratio (1.1): - It is clearly indicating that the business’s immediate solvency is
in no better position to cover short-term obligations from liquid asset. ( as june 10/2023 )
it needs improvement . The indebtedness of the business, which is measured by debt to
assets and debt to equity ratio, is good for all the period under consideration.

3. Leverage Ratio

Debt to Asset ratio: - (1.1) of the firm’s assets are financed by debts. Therefore, the
business’s leverage ratio is shows most of the financing is obtained from internal sources.

 Debt-to-Equity Ratio, which measures a company’s ability to service its debt

obligations with respect to owner equity is calculated as Total Debt/Total Equity.
The Debt-to-Equity ratio of business is 1.1 which indicate it is very low debt
relatives to equity.
 Debt-to-Capital Ratio: (0.30) which measures a company’s ability to service its
debt obligations with respect to capital, including shareholder equity and interest-
bearing debt, calculated as Total Debt/ (Total Debt + Total Equity).
 Asset-to-Equity Ratio: - (2.979) which measures the stability of a company’s
finances by dividing its total assets with its total equity and is calculated as Total
Assets/Total Equity.

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 The total assets of the company have reached of Birr 1,575,963.77 as at of which
the current and fixed assets stand at 4% and 96% respectively as 2016 E.C.
ii. Industry Risk Analysis.
Muluget Eshetu Demisie business was established and registered with a ministry of trade
with an initial capital of Birr 10,000.00 to be engaged in Retail trade of household DTS.
The applicant has been engaged on DTS in Oromiyaa Bishoftu town/kebale 06 for a long
time and he want to expand his business.
The customer is licensed for and engaged in.
 . Retail trade of Agricultural products . (DTS) .
As there is a need of all the applicant business, there is a high demand. As a result,
there is a low risk.
iii. Management Risk Analysis.
 As per the information obtained from the trade license and Business Visit report, the
applicant has been in the business since 08/12/2012 E.C with initial paid-up capital
of 10,000 ETB is indicated under background of the business.
iv. Ownership Risk Analysis
Most of the business is supported by customer own equity fund.
v. Collateral Risk Analysis.
 The collateral offered by the customer is listed as follows.

Security Description Valued Estim Estimation

ation
(Type, Location, and ownership Evidence) By Date Value

1. Higher villa Residential building registered Bank Engineer 23/0 1,544,084.21

in the name of Addee Ayinalem Shifaraw 6/20
Beyene located in Bishoftu Town , LHC (Robel Jatama) 23
No.OR003160512009,plot area; 200.72m2,
built up area; 108.39.84m2

Total 1,544,084.21Birr

2. Credit Risk Rate

a. As per the Branch: -1- Excptionnaliy low risk
b. As per the Credit Analyst: -1- Excptionnaliy low r isk
The risk rating is the combination of business strength and collateral strength. The general
sense of risk rating “-1-” is that the business strength of the customer is Excptionnaliy low r

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isk and the collateral is Strongly Secured. The overall implication of credit risk grade” _1_”
is that there is- Excptionnaliy low risk .
9. Strength and opportunity

 Great interest of the applicant to do business with our bank

 He has more than 9 years’ experience in this business
10. Weakness and Threats

Weaknesses

 No

Threats: -
 No
1. Exception: No exceptions

12. Condition:

 No
Recommendation of the Branch.
- The branch has recommended Term loan of Birr 1,500,000 (One million five hundred
thousand birr only) for a period of four (4) year payable Monthly against the offered
collateral.
Request Analysis
In its letter dated 26/03/2016, the applicant has formally requested a term loan of Birr
1,500,000.00 (One Million five hundred thousand birr) for a period of three (3)-year
period, with Monthly installments. Request is lodged to finance working capital
requirement of the existing business. Thus, the working capital requirement for the
business have been computed as per the below assumption using sales method approach.

Description June30/2021 June 30/2022 Dece30/2023 AVERAGE

Sales 3,654,150.00 3,808,245.50 2,210,537.36 3,224,310.95

Cost of Sales 2,174,033.08 2,063,140.85 1,251,238.12 1,829,470.68
Gross Profit 1,480,117.81 1,745,104.65 959,298.24 1,394,840.23
Sales Growth Rate (%) 0% 4% -72% -23%
CGS (%) 59% 54% 57% 57%
Bearing in mind the facts from the past sales performance of the business the under listed assumptions has been
made to determine the required working capital for the coming year.

 The sales of the business have been increased during the year end 2022 while it has decreased
significantly during the recent financial period. Of course, the businesses sales have declined during the
recent financial period due to economic stagnation prevailed in the country and other factors and we
understand that the applicant has planned to curve the situation with the help of the requested bank loan

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. The average sales of the business for the past three years have been Birr 3.22 million. Therefore, the
average income of the business so far is considered as a base year, i.e. 3221310.95 and a growth rate of
5% is assumed for the coming period.
 As can be seen from the table the average CGS is around 57%. Hence, 57% CGS is considered while
determining the coming year’s cost.
 Considering the nature of the business three time’s working capital turnover is assumed for the coming
period.
 15% margin is assumed for inflation;
Based on the above assumptions, working capital requirement amount is determined as below;
Description Label
Projected sales amount 3,224,310.95 A
Cost of Goods Sold (3,801,146.92*0.57) 1,837,857.24 B
Working capital required for a year 1,837,857.24 C
Working capital required for single cycle 1,837,857.24/2 918,928.62 D
Margin held for inflation (0%) 15% E
Gross working capital requirement for single w/c cycle 1,056,767.91 F
Net working capital as of Dec 30, 2023 0.00 G
Required Working Capital (G-I) 1,056,767.91
As determined above using the sales method the net working capital at the end of the preceding period, the
business requires additional working capital to the extent of Birr 1,056,767.91.

1,544,084.21: 1,000,000
RATIO OF ACCEPTABLE COLLATEAL VALUE TO RECOMMENDED TERM LOAN
0.647

Recommendation of the credit analysis:

Following the forgoing analysis, I recommend a term loan of Birr 1,000,000.00 Birr (One Million Birr only) for
a period of Three (3) years on monthly installment base of Birr 35,652.73 @17% annual interest rate, against
the offered residential building.

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