## Financial Analysis, Credit Analysis, and Z-Score Model Application

### **I. Financial Analysis:**

#### **1. Liquidity Ratios:**

- **Current Ratio:**

- Ranged from 1.83 in 2019 to 1.49 in 2022, indicating the company's ability to cover short-term
obligations.

- Notably strong in 2019 with a ratio of 1.83.

- **Quick Ratio (Acid Test Ratio):**

- Maintained stability despite a decrease, remaining reasonable at 1.21 in 2021.

- Best performance in 2019 and 2020 with ratios of 1.53 and 1.22, respectively.

- **Cash Ratio:**

- Sudden increase in 2022 from 1% to 6%, necessitating further investigation.

- Best performance in 2022, highlighting a significant improvement.

- **Cash Flow Ratio:**

- Improved coverage of liabilities with operating cash flow, reaching 36% in 2022.

- Significant progress from 26% in 2020.

- **Working Capital Ratio:**

- Decrease observed, signaling potential efficiency gains.

- Best performance in 2019 with a ratio of 31%.

- **Net Working Capital:**

 - Steady increase over the years, reaching its peak in 2022.

- Suggests improved operational efficiency or business growth.

#### **2. Efficiency (Activity) Ratios:**

- **Inventory Turnover:**

- Increasing trend from 1.98 in 2019 to 2.59 in 2021, indicating improved efficiency.

- Best performance in 2021.

- **Inventory Days Ratio:**

- Unfortunately, an error in the data prevents meaningful analysis.

- Clarification required to assess efficiency in managing inventory.

- **Total Assets Turnover:**

- Improvement over the years, reaching 0.57 in 2021.

- Best performance in 2021.

- **Fixed Assets Turnover:**

- Increasing trend suggests better utilization of fixed assets.

- Best performance in 2021.

#### **3. Leverage Ratios:**

- **Total Liabilities to Total Assets:**

- Decreasing trend indicates lower reliance on debt, reaching 0.443 in 2021.

- Best performance in 2021.

- **Equity to Total Assets:**

- Slight decrease within reasonable limits, with the best performance in 2019.
 - **Liabilities to Equity:**

- Decreasing trend is positive, indicating lower financial risk and dependency on debt.

- Best performance in 2019.

- **Total Assets to Equity:**

- Increasing trend suggests efficient use of equity to generate assets.

- Best performance in 2022.

#### **4. Interest Coverage Rate:**

- Unfortunately, data not provided.

- Crucial for ensuring the company can cover its interest expenses, indicating financial sustainability.

#### **5. Profitability Ratios:**

- **Gross Profit Margin:**

- Slight improvement over the years, reaching 0.474 in 2022.

- Best performance in 2022.

- **Operating Profit Margin:**

- Positive trend suggests efficient cost management and operational performance.

- Best performance in 2022.

- **Net Profit Margin:**

- Consistent improvement, reaching 0.160 in 2022.

- Best performance in 2022.

- **ROA (Return on Assets):**

- Positive trend indicates generating more profit from assets.

 - Best performance in 2022.

- **ROE (Return on Equity):**

- Positive trend suggests effective use of equity capital to generate profits.

- Best performance in 2022.

### **II. Credit Analysis:**

#### **1. Liquidity Ratios (2022):**

- **Current Ratio (1.49):**

- Indicates reasonable short-term liquidity.

- **Quick Ratio (1.21):**

- Demonstrates swift short-term debt obligation fulfillment.

- **Cash Ratio (6%):**

- Significantly improved, emphasizing strengthened cash reserves.

#### **2. Profitability Ratios (2022):**

- **Net Profit Margin (16.00%):**

- Robust indicator of profitability and effective resource utilization.

- **ROE (15.53%):**

- Signifies efficient use of equity capital, enhancing creditworthiness.

#### **3. Leverage Ratios (2022):**

- **Total Liabilities to Total Assets (45.14%):**

- Conservative capital structure indicating low reliance on debt.

- **Equity to Total Assets (54.86%):**

 - Strong equity support reducing financial risk.

#### **4. Efficiency (Activity) Ratios (2021):**

- **Inventory Turnover (2.59):**

- Efficient management reducing the risk of excessive inventory holding.

- **Total Assets Turnover (0.57):**

- Highlights effective generation of sales from assets.

#### **5. Interest Coverage (Not Provided):**

- Unfortunately, the absence of this critical ratio raises concerns about the company's ability to manage
additional debt.

### **III. Loan Recommendation:**

- **Interest Coverage Assessment:**

- Thorough evaluation of the company's ability to cover interest expenses is crucial for understanding
the impact of additional debt on financial health.

- **Purpose of the Loan:**

- Alignment with strategic goals for growth and financial stability is crucial.

- **Future Cash Flow Projections:**

- Analysis of future cash flow projections to anticipate the company's ability to meet debt obligations.

### **IV. Loan Structuring and Mitigation Strategies:**

- **Structured Loan Terms:**

- Offer the loan with competitive interest rates based on the company's creditworthiness.
- **Monitoring Mechanisms:**

- Implement mechanisms to ensure financial covenants are met, such as a debt service coverage ratio
requirement.

- **Collateral Options:**

- Consider collateral options like accounts receivable or inventory pledging, valuing them at 1.5 times
the loan amount.

- **Regular Financial Reviews:**

- Conduct regular reviews to identify deviations from expected performance for early issue
identification.

### **V. Conclusion:**

In conclusion, Rameda Company's commendable financial health positions it as a suitable candidate for a
$5 million or more loan. A detailed assessment, careful loan structuring, and ongoing collaboration are
recommended to uphold financial health. This financial report aims to provide a structured analysis for a
prudent lending decision.

---