RMA Final Exam CEC Guide

Your manager has asked you to prepare an analysis for a borrowing request at Your Bank. Which of the following tasks are you most likely to complete first?

a. Prepare a term sheet

b. Create a projection

c. Analyze the company's available collateral

d. Evaluate the company's business strategy

d. Evaluate the company’s business strategy

You are calling for the first time on the owner of a successful local business that currently banks with another bank in your market. You are very interested in developing a banking relationship with the business and its owner. Which of the following goals will be most important to achieve in the initial meeting?

a. Obtain a commitment from the owner to open a checking account at your bank.

b. Offer a term sheet outlining a loan at a competitive rate.

c. Learn about the owner's business and personal objectives.

d. Gather the most recent financial statements on the business.

c. Learn about the owner’s business and personal objectives.

Gruper Home Appliances, Inc., a manufacturer of kitchen appliances, sells 70% of its goods to X-Mart, a large national retailer of consumer durables. Which of the following best describes the reason why Gruper has a low degree of bargaining power with X-Mart?

a. There are no substitutes for the product

b. The suppliers have high variable costs

c. Customers have brand loyalty

d. Sales are concentrated with a large volume buyer

d. Sales are concentrated with a large volume buyer

The NBER has released a report that suggests the economy is showing signs that it is moving into early contraction. You review your current portfolio to develop a list of customers that are likely to fare best through this cycle. Which of the following would be included on your list?

a. A plumbing supplies distributor

b. A local high fashion retailer

c. A manufacturer of auto engines

d. A local accounting firm

d. A local accounting firm

You are preparing to meet with the owner of Style-For-Less, a successful retailer of apparel geared to young professionals. The owner has obtained and outfitted a second location in a high-traffic retail mall in preparation for its planned opening and has asked to meet with you to discuss a possible financing need. Based on the industry, you think the owner will most likely have a need for:

a. A commercial mortgage to purchase the new location

b. A lease to fund the acquisition of store fixtures

c. A line of credit to purchase inventory for the upcoming season

d. A term loan to purchase a point-of-sale system

c. A line of credit to purchase inventory for the upcoming season

The Conference Board announced today that interest rates remain low. Reports indicate that companies are holding lower inventories and capital expenditures have decreased. The availability of credit continues to be tight. Based on the above report, which of the following best describes the current stage in the general business cycle?

a. Early expansion

b. Late expansion

c. Early contraction

d. Late contraction

d. Late contraction

The economy is entering the late contraction stage of the business cycle. Your Bank has four customers requesting an increase to their lines of credit. Assuming their overall creditworthiness is comparable, which of the following customers would exhibit the least risk to the Bank?

a. A wholesaler of floor coverings

b. An upscale children's clothing boutique

c. A beer and soda distributor

d. A temporary staffing firm

c. A beer and soda distributor

In which industry lifecycle stage would companies be most likely to focus on cost discipline?

a. Introductory

b. Growth

c. Mature

d. Decline

d. Decline

In which company lifecycle stages is a company most likely to be profitable?

a. Introductory and growth

b. Growth and mature

c. Mature and declining

d. Introductory and declining

b. Growth and mature

In which company lifecycle stage is a company most likely to invest in equipment that adds efficiency?

a. Introductory

b. Growth

c. Mature

d. Declining

c. Mature

Which of the following statements best describes the relationship between product and industry lifecycle stages?

a. A product's lifecycle stage by definition coincides with its industry's lifecycle stage.

b. Product lifecycle stages generally lag their industry by one stage.

c. Product lifecycle stages generally lead their industry by one stage.

d. Individual products can be variable in their lifecycle timing compared to the overall industry stage

d. Individual products can be variable in their lifecycle timing compared to the overall industry stage

Clara's Costumes is a retailer of costumes, primarily purchased for Halloween. Which of the following characteristics would most likely be present in Clara's financial statements?

a. Inventory will increase immediately following the seasonal peak

b. The need for credit will be lowest during the high point in the operating cycle

c. Receivables will increase after the increase in inventories

d. Fixed asset spending will be highest at the seasonal peak

c. Receivables will increase after the increase in inventories

GCC ,Inc. is a local firm that provides general contracting services to commercial real estate developers operating in your region. In assessing the sustainability of the company's revenues, which of the following questions would be least relevant to ask?

a. What is your current backlog of contracts?

b. How many developers do you work with?

c. What is the outlook for the economy in the region?

d. How much did your sales grow last year?

d. How much did your sales grow last year?

Which of the following expenses is not included in an income statement?

a. Interest expense

b. Depreciation

c. Principal repayment

d. Repairs and maintenance

c. Principal repayment

Which of the following would be considered a variable cost?

a. The cost of property & casualty insurance

b. Salary paid to the chief financial officer

c. Rent on the production and office facilities

d. Wages paid to customer service representatives

d. Wages paid to customer service representatives

Six months ago a high fashion retailer opened an outlet store to sell out-of-season goods left over from its main location. A review of the retailer's current year results compared to prior years is likely to show which of the following results?

a. Lower sales growth

b. Higher operating margin

c. A lower gross profit margin

d. Higher income tax rate

c. A lower gross profit margin

Which statement is the most logical reason for the change in turnover seen in Year 4? Year 1: 5.4x, year 2: 6.0x, year 3: 6.2x, year 4: 1.45x

a. The company’s sales grew sharply in Year 4.

b. The company opened a new plant in Year 4.

c. The company changed its sales mix in Year 4.

d. The company sold some of its delivery trucks in Year 4.

b. The company opened a new plant in Year 4.

As the credit analyst of Your Bank, you have been asked to assess the liquidity of Burgess Corporation, a distributor of office supplies. Which of the following measures would provide the most accurate measure of liquidity?

a. Net working capital

b. Quick ratio

c. Current ratio

d. Working capital/sales

b. Quick ratio

A distributor of office equipment has experienced moderate sales growth in each of the last three years while gross and operating profit margins have remained stable. Each year the company has shown a declining amount of cash after operations. What is the most logical cause of the declining cash after operations?

a. Higher dividend and interest payments

b. Increasing reliance on trade creditors

c. Less efficient inventory management

d. Acquisition of new capital equipment

c. Less efficient inventory management

During a recent meeting with Your Bank's loan committee, you were asked to determine why Clear Lights, a manufacturer of lights used in office buildings, requested financing. It was stated that the company had positive cash after debt amortization. What then would be the cause of the financing request?

a. Operating expenses

b. Dividend payments

c. Interest expense

d. Capital expenditures

d. Capital expenditures

Which of the following events would create a cash inflow in a direct cash flow statement?

a. Stable sales with declining margins.

b. Longer customer payment terms.

c. Slower payment of trade creditors.

d. Pay off existing bank debt.

c. Slower payment of trade creditors.

If a company has negative net cash income, which of the following observations is true?

a. The company did not generate enough cash flow from sales to cover cash production costs.

b. The company did not generate enough net cash after operations to cover interest and dividends.

c. The company did not generate enough cash after operations to pay its taxes.

d. The company did not generate enough cash profits to cover its cash operating expenses.

b. The company did not generate enough net cash after operations to cover interest and dividends.

A company with current-year sales of $4,500,000 and cost of goods sold of $3,248,000 reduced its inventory days from 119 days in the prior year to 115 days for the current year. Its receivable days slowed from 40 days to 43 days. What was the cash flow effect of these swing-factor efficiency changes?

a. No cash flow effect

b. ($1,000)

c. $9,000

d. $12,000

b. ($1,000)

A company's accounts payable days have increased from 14 to 37. Which of the following explanations suggests the least appropriate management decision from the bank's perspective that lead to this change?

a. Management decided to stock commonly purchased items formerly sold as special-order merchandise. They relinquished some trade discounts by extending payments to suppliers to finance the inventory. The net effect on cash flow was a small increase in net cash after operations.

b. Management purchased extra inventory, at a very attractive price, from a supplier left with excess stock after its own largest customer canceled an order. The supplier agreed to extend terms for the purchase. The net effect on cash flow was a slight decrease in net cash after operations.

c. Management used supplier credit to reduce its bank line of credit, so it could meet a debt service coverage covenant on a term loan. Relinquished supplier discounts offset the saved interest expense. The net effect on cash flow was a significant increase in net cash after operations.

d. Management extended its supplier payments to manage cash flow during very slow seasonal sales caused by unusually harsh weather conditions. Inventory days have increased, and the company relinquished supplier discounts. The net effect on cash flow was a small decrease in net cash after operations.

c. Management used supplier credit to reduce its bank line of credit, so it could meet a debt service coverage covenant on a term loan. Relinquished supplier discounts offset the saved interest expense. The net effect on cash flow was a significant increase in net cash after operations.

Cheap Stuff, Ltd. is a distributor of goods to discount stores. The company has experienced 12% sales growth over the last three years. Despite continued economic declines projected, the company is forecasting continued sales growth of 10-15% each year over the next 3 years. Which of the following sources of financing would be most appropriate to support related increases in receivables and inventory?

a. Demand note

b. Seasonal line of credit

c. Bridge loan

d. Revolving line of credit

d. Revolving line of credit

Which of the following sources of information is least critical when developing a set of projections?

A. past operating results of the company

B. management reports including business plan, strategic objectives, mission statements, management and forecast

C. industry and economic reports

D. organizational charts and job descriptions

D. organizational charts and job descriptions

Which of the following best describes the order in which a manual projection is constructed?

A. The amount of existing and new debt is determined to project interest and principal payments.

B. Capital expenditures and working capital needs are forecast to estimate total borrowing needs.

C. The income statement is constructed before calculating the swing factors and other elements on the balance sheet.

D. Net income and dividends are projected to determine retained earnings and total net worth on the balance sheet.

C. The income statement is constructed before calculating the swing factors and other elements on the balance sheet.

Assume you are developing a financial projection for the next twelve months. To date, FAR has been very profitable and has very positive cash flow. Which of the following projection variables are most critical to use in a sensitivity analysis that tests the company's continued ability to generate cash flow needed to service term debt?

a. Sales growth % and gross profit margin.

b. Gross profit margin and inventory days

c. Sales growth % and inventory days.

d. Gross profit margin and receivable days.

a. Sales growth % and gross profit margin.

When developing the structure of a loan, which of the following are least critical to consider?

a. The cash flow and collateral available for repayment

b. The customer's sensitivity to pricing and restrictive covenants

c. The need to meet a much lower rate offered by a competitor

d. The type of loan offered based on the loan purpose

c. The need to meet a much lower rate offered by a competitor

Rose's Posies is a local florist with several locations in the county. You met the owner recently and she has asked to speak to you about a potential loan request. Which of the following would be the most typical type of loan this company would require?

a. A term loan to acquire capital assets.

b. A revolving credit to fund long-term sales growth

c. A mortgage loan to acquire one of the store locations

d. A seasonal line to fund inventory build-up

d. A seasonal line to fund inventory build-up

A bridge loan typically displays which of the following characteristics?

a. A term in excess of one year with a single repayment at maturity

b. Repayment from operating cash flow and secured by receivables

c. Repayment from the sale of equipment or real estate for example with a term of one year or less

d. Interest only payments with a clean-down period required

c. Repayment from the sale of equipment or real estate for example with a term of one year or less

Sandy's Seaside Sundries sells a range of products at the New Jersey shore, including sunscreen, beach toys, and beach apparel during the summer season. Which of the following types of financial information would be most relevant in determining both the amount and duration of a seasonal financing need for the company?

a. Three years of company tax returns

b. Audited statement and a six-month interim

c. Five-year annual projections

d. Monthly cash budget or interims

d. Monthly cash budget or interims

When evaluating creditworthiness all of the following are reasons that banks and business owners focus attention on capital structure EXCEPT:

a. Appropriate capital structure insures the operating profitability of the business

b. Appropriate capital structure is necessary to implement the business strategy

c. Appropriate capital structure can help the business through economic downturns

d. Appropriate capital structure suggests the ability to meet obligations as they come due

a. Appropriate capital structure insures the operating profitability of the business

The covenants of a loan agreement should serve which of the following purposes?

A. They legally "perfect" the bank's collateral position and list events of default and their remedies

B. They are designed to insure timely repayment and keep the bank informed as to financial performance

C. They identify key risks in a borrower's operating profile and restrict management's ability to

make daily operating decisions

D. They enable the bank to spot signs of deterioration and provide a means of communication with the borrower.

D. They enable the bank to spot signs of deterioration and provide a means of communication with the borrower.

Which of the following would be the primary objective of a negative covenant in a loan agreement?

A. To enable early detection of financial deterioration

B. To establish a means of communication with a borrower

C. To preserve cash flows for debt repayment

D. To provide assurance that a loan will be repaid

C. To preserve cash flows for debt repayment

Crown Properties, LLC develops and owns a number of fully-occupied commercial properties. Crown Properties' ownership includes the following: Crown Development Corporation, a major regional developer with substantial financial resources (15%), Maxwell Crown, largest shareholder of Crown Development and a customer of your bank's trust department (5%), and Maxwell's four children, all of whom are under the age of 22 (20% each). In setting the structure for a loan to Crown Properties, which of the following support would provide the bank the most protection?

a. Maintenance agreements from each of the 20% owners of Crown Properties.

b. A collection guaranty from Crown Development Corporation

c. Comfort letters from each of the six owners of Crown Properties

d. Payment guaranties from Crown Development and Maxwell Crown

d. Payment guaranties from Crown Development and Maxwell Crown

Personal credit scores are relevant when considering a commercial loan to a business because:

a. They provide an indication of ability to pay rent

b. They are valid indicators as to business management ability

c. They are useful in determining the business loan amount that can be qualified

d. They provide information about loans guaranteed by the business owner

b. They are valid indicators as to business management ability

Which of the following companies report consumer credit information?

a. Experian and TRW

b. Fair-Isaac and Equifax

c. TransUnion and TRW

d. Equifax and Experian

d. Equifax and Experian

Which of the following actions is most likely to negatively impact an individual's credit score?

a. Paying off the balance on a revolving card instead of making monthly payments.

b. Underutilization of a home equity line of credit.

c. Closing out a well-established credit card account with good payment history.

d. Applying for a new auto loan every five years.

c. Closing out a well-established credit card account with good payment history.

Where is a lender most likely to look for evidence of a fraud in financial statements received from a borrower in support of a loan request?

A. Understating the balance of receivables

B. Overstating payables owed to the trade

C. Including contingent sales in revenues

D. Accelerating recognition of expenses

C. Including contingent sales in revenues

Which business entity exposes an owner to potential liability for business obligations?

A. C corporation

B. S corporation

C. General partnership

D. Limited liability company

C. General partnership

Which type of entity is potentially subject to a "built-in gains tax"?

A. C corporation

B. S corporation

C. General partnership

D. Limited liability company

B. S corporation

In estimating cash flow from a business tax return, which of the following steps are taken?

a. Subtract depreciation and amortization

b. Add decreases in accounts receivable balances

c. Subtract increases in account payable balances

d. Add dividends and distributions paid

b. Add decreases in accounts receivable balances

When a corporate tax return indicates that it is a consolidated return, it signifies that:

A. There are intercompany loans and advances.

B. A list of subsidiaries is provided.

C. An additional controlled group tax is due.

D. There are parent guaranties of subsidiary debt.

B. A list of subsidiaries is provided.

When reviewing a Form 4562, what information will a lender learn about the business?

a. The amount of any capital gains tax payments.

b. The amount of proceeds received from used equipment sales.

c. The amount of proceeds from securities sales.

d. The amount of any fixed asset purchases.

d. The amount of any fixed asset purchases.

Tax law provides for a variety of deductions that can be used by businesses or their owners (if the business is taxed at the ownership level). Which of the following deductions would be available only to C corporations and not to S corporations, partnerships, LLCs and their owners?

A. Domestic production activities deduction

B. Net operating loss carryforwards

C. Dividends received deduction

D. Section 179 expense deduction

C. Dividends received deduction

The basis for reporting assets on personal financial statements is

a. Historical cost.

b. Current fair market value.

c. Taxable basis.

d. Amortized cost.

b. Current fair market value.

Cash flow from items reported on page 1 of the Form 1040 includes which of the following?

a. Partnership income.

b. Capital losses.

c. Net operating losses.

d. Unemployment compensation.

d. Unemployment compensation.

When the tax return indicates alimony, which of the following additional expenses should the analyst be alert for?

a. Medical expenses.

b. Mortgage interest.

c. Child support.

d. Rent expense.

c. Child support.

Which of the following tax payments for salaried individuals is determined from Form W-2?

a. Estimated tax payments

b. Social Security tax payments

c. Alternative minimum tax payments

d. Capital gains tax payments

b. Social Security tax payments

Analysts refer to the Form W-2 to determine personal cash flows when the client is

a. A self-employed individual.

b. A member-manager of an LLC.

c. A retiree with pension benefits.

d. An employee of a corporation.

d. An employee of a corporation.

When underwriting the annual debt service requirement for a business line of credit, it is prudent to use the

A. interest actually paid over the last 12 months.

B. average interest actually paid over the last 36 months.

C. anticipated interest to be paid over the next 12 months.

D. interest that would be paid over the next 12 months assuming a fully extended line.

D. interest that would be paid over the next 12 months assuming a fully extended line.

All of following statements are part of the definition of global cash flow EXCEPT:

A. It quantifies cash inflows and outflows for individuals and their closely held businesses

B. The goal is to surface contingent risks that could negatively impact debt service

C. Both business and personal debt service is included in debt service

D. The tool provides a roadmap that addresses all situations

D. The tool provides a roadmap that addresses all situations

Which of the following is NOT a form of global cash flow analysis used in banking:

A. Public companies with concentrated shareholder positions

B. Real estate investors with multiple holdings

C. Professional clients with business interests

D. Subchapter S corporations and their shareholders

A. Public companies with concentrated shareholder positions

What are the most important considerations when determining if a business's cash flow should be included in the global cash flow?

A. Borrower can document ownership and access to the business's cash flow, and the business is sufficiently liquid to support its withdrawal.

B. Borrower is the majority or sole owner of the business and maintains exclusive or majority control over its cash flow.

C. Business has financial statements and tax returns prepared on the same accounting basis as the borrower's and these demonstrate little or no financial co-dependency.

D. Business has the capacity to assume actual contingent liabilities without incurring excess leverage and/or exceeding prudent debt service requirements.

A. Borrower can document ownership and access to the business's cash flow, and the business is sufficiently liquid to support its withdrawal.

When considering Form 1040 "Wages, salaries, and tips" as a source of cash in the global cash flow formula, one must recognize that the amount reported

A. is net of any pre-tax payroll allocations.

B. includes amounts not corroborated be a W-2.

C. is gross of Medicare deductions.

D. does not include wages from closely held corporations.

A. is net of any pre-tax payroll allocations.

When considering Form 1040 "capital gains" as a source of cash in the global cash flow formula, the

A. reported gain should not be used as a source of cash, whether recurring or nonrecurring.

B. reported gain should be used as a source of cash only if subsequent asset sales are likely to take place.

C. asset selling prices should be used as a source of cash if sales proceeds were not reinvested in another asset.

D. asset selling price minus the gain should be excluded to isolate the recaptured depreciation amount.

C. asset selling prices should be used as a source of cash if sales proceeds were not reinvested in another asset.

Which of the following interest amounts, reported on the Form 1040 Schedule B ("Interest and Ordinary Dividends"), should be excluded in the global cash flow formula?

A. accrued interest on discounted bonds

B. interest from partnerships or other pass-through entities

C. interest received from your own financial institution

D. verified interest received from your own private mortgages

A. accrued interest on discounted bonds

Which of the following events is most likely to lead to business failure?

a. Recruiting a new CEO from a major industry competitor

b. Failing to achieve budgeted sales growth in one year

c. Receiving a term loan from the majority shareholders

d. Controlling personnel costs by hiring family members

d. Controlling personnel costs by hiring family members

Which of the following warning signs of financial difficulty would be less detectable on a company's financial statement?

a. Slow payment of key trade suppliers and delinquent tax payments.

b. Deferral of equipment maintenance and cutback on staff training.

c. Higher line borrowings and sale of production assets.

d. Lower cash balances and reduction of staff through layoffs.

b. Deferral of equipment maintenance and cutback on staff training.

Once a problem loan has been identified, which of the following best describes the order in which a resolution should be reached?

a. Identify the cause/s of the problem, determine resources available to cure the problem, and implement a plan to address the problem.

b. The borrower and banker recognize a problem, then examine internal operations and external factors to determine the cause, and assess resources available to address the problem.

c. After identifying a problem and determining the cause/s (internal operations and/or external factors), the banker develops a plan to address the problem.

d. After the internal operational issues and external factors that led to a problem are determined, the banker determines whether to call an event of default.

b. The borrower and banker recognize a problem, then examine internal operations and external factors to determine the cause, and assess resources available to address the problem.

As part of analyzing a problem loan, a banker will complete all of the following steps EXCEPT:

a. Complete a new lien search

b. Perform an updated financial analysis

c. Hire a turnaround consultant

d. Order an updated appraisal on collateral

c. Hire a turnaround consultant

ABC Corporation has encountered financial difficulty in the past year and experienced substantial management turnover during that time. Although loan payments remain current and the bank has attempted to work with the new management team to identify causes of the performance problems, the company has decided to file bankruptcy. Which of the following effects of the bankruptcy is LEAST likely to affect the bank?

a. Monthly loan payments received prior to the filing must be returned.

b. No legal actions to collect the loan may be taken.

c. Additional collateral assigned in the last three months may be voided.

d. The bank may not setoff its claims against the company's accounts at the bank.

a. Monthly loan payments received prior to the filing must be returned.

What are the steps in the relationship building approach?

Step 1 : What are the companies strategic and competitive challenges?

Step 2: What are the owners objectives?

Step 3: What are financial services or products can the bank provide to meet the owners business and personal objectives?

the lending decision process: borrower

who?

the lending decision process: purpose

what for? match business model? reasonable?

the lending decision process: request

amount reasonable? tied to strategy? sufficient?

the lending decision process: reason

why the need to borrow? match strategy? unacceptable?

the lending decision process: repayment

source of funds? secondary source?

the lending decision process: terms

can it be structure to reduce the amount of risk?

buyers are powerful when? (5 reasons)

1. Few but large-volume buyers

2. Products are standard or undifferentiated

3. Supplying companies have high fixed costs

4. Customers could produce the product themselves

5. Product is not of strategic importance to customers

what do powerful buyers do?

Push down prices, negotiate buyer- favorable contracts, create a weakness for the seller.

suppliers are powerful when? (5 reasons)

1. market is dominated by a few large suppliers

2. customers for the suppliers products are not concentrated

3. no substitutes exist for the product

4. it is expensive to switch from one supplier to another

5. suppliers can integrate forward

what do powerful suppliers do?

Hold high prices, negotiate seller favorable contracts, Create a weakness for buyers.

there are low barriers to entry when?

1. Scale economies are not needed

2. No competitors have significant brand loyalty and/or brand does not influence the purchase decision

3. No scarcity of vital resources and existing competitors do not control vital resources

4. It is not expensive for difficult for customers to switch to a new provider or product

5. There are no regulatory impediments to entry

low barriers

low/declining prices, high competition, low loyalty

high barriers

high/stable prices, low competition, high loyalty

substitute product threat is high when:

1. customers have no brand loyalty and/or there are no established brands

2. changing to another product saves money without sacrificing features or performance

3. it is simple and inexpensive to switch

4. makers of substitute products have high margins and can easily lower price to attract new buyers.

no substitutes

limited competition, high loyalty, high prices

many substitutes

high competition, low loyalty, low prices

rivalry is intense when?

1. There are many players of about the same size.

2. There is little to distinguish competitors and their products, inviting price competition.

3. The industry is in a mature or declining life cycle stage.

4. Barriers to exit are high

high competition

low prices, commodity

low competition

high prices, specialty

business cycle stages: early expansion

1. Interest rates low, credit is plentiful

2. Sales/profits up

3. Expansion facility, inventory, staffing,

production, introduce new products

4. Consumer optimistic, disposable income

up

why would you borrow in the early expansion stage?

to support working capital growth

business cycle stages: late expansion

1. Demand for credit

higher, rates rise

2. Capacity utilization

climbs, prices stabilize

3. Demand for goods and services and business expansion stabilizes

4. Optimism remains but is increasingly less

why would you borrow in the late expansion stage?

to support continued growth

business cycle stages: early contraction

1. Business less optimistic, scale back investment and expansion

2. Consumer less optimistic and scale back spending

3. Borrowers look to reduce or restructure leverage

4. Sales slowing, inventory increasing, trade credit extending

why would you borrow during the early contraction stage?

cover slower A/R and inventory turns, accelerate A/P for discount, restructure debt.

business cycle stages: late contraction

1. Economy slows, no

investment, close inefficient operations, staffing reductions

2. Unemployment increases

3. Interest rates fall due to

lack of demand, however, credit is restricted to only the strongest borrowers

4. Businesses reduce inventory, production and staffing to match lower demand, aggressive A/R collection, debt restructure

why would you borrow during the late contraction stage?

strategic opportunities, cover fixed outlays

highly susceptible industries

construction, plumbing, retail trade

less susceptible industries

beverages, accounting/auditing, insurance

introductory stage characteristics

Focus: Invest in product development and roll out

Marketing: Based on innovation and education

Pricing Strategy - value of new and novel

introductory stage credit needs

R&D

Plant and Equipment

Marketing

Inventory, A/R

growth stage characteristics

Focus: Growth, market share, branding, scale efficiency

Marketing: To differentiate

Pricing Strategy: Match capacity with demand, may discount to build market share

growth stage credit needs

Working capital

necessary to match sales growth

Product development

Marketing

Plant and equipment

mature stage characteristics

Focus: Protect market share. Operational Efficiency, R&D on "new and improved" variants

Marketing: Protect brand loyalty and image

Pricing Strategy: Competitive, protect volume/efficiency/ share

mature stage credit needs

Marketing

Efficiency improving

equipment

Fund established working capital peaks

Dividends

declining stage characteristics

Focus: Try to re-enter a prior phase through innovation, merger or acquisition. Profit protection, cost control

Marketing: Protect and reinforce habits/promote alternative product use

Pricing: Protective