Business Decision Analysis Assignment Sample

DECISION ANALYSIS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
1. Contrast financial position of business..................................................................................3
2.Explain if you believe company met conditions of loan agreement........................................5
3. What are the purposes of these conditions in loan agreements...............................................7
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
To address and evaluate important choices confronted by businesses is main use of
decision analysis. This analysis uses lots of tools to calculate various information which is used
for the decision making. It is very important for decision makers to take judgment in complex
situation in business field. Here in this report, finance executives of firm, Needy Ltd has taken
help of technique decision analysis to trigger out that the company's financial statements.
Present report will provide detail information about company’s finances with thehelp of decision
analysis. The report will provide deeper insight of organization that whether it will able to take
loan on basis of its finances. This assignment will also provide the brief synopsis of purpose to
have condition in loan agreement. Therefore, decision analysis plays an important role in every
organization in the complex situations.
1. Contrast financial position of business.
In issuing cash of equal value in the share of common stock with a specified number of
shares that can be converted by holders in form of bond is called convertible notes. With a high
growth potential and low credit rating companies issues a convertible bond. For the funds of
investor Needy ltd agrees to give fixed or floating interest rate as they do the common bonds that
is why convertible are also called debt security.
Particulars Formula Details Ratio
Asset Turnover Ratio Net sales 160000 5%
Average Fixed Assets 2950000
Debt to equity ratio Total liabilities 3500000
0.0172
%
Total shareholder equity 2030000
Current ratio Current assets 1620000 0.98
Current liabilities 1660000
Quick ratio Current assets- inventories 820000 0.49
Current Liabilities 1660000
Accounts receivable turnover Net credit sales 160000 22 days
Average Accounts receivable 740000

Therefore, on observing the company’s financial position it can be said that Needy Ltd
has not received his collection from its customers until 2 July 2017. As it was time for closing
for all organization when Needy Ltd came to know that collection has not received yet
(Marttunen, Lienert and Belton, 2017). Due to this Needy Ltd was unable to repay its loan which
they have to pay at end of year.
Firm issues a cheque to its creditors of $160000 which is equal to the collection amount.
And it considers a one-day extension on due date of payable so that it can easily repay the loan
amount.
Contrasting of financial ratios
On basis of given financial statement of Needy ltd, probable ratios reports the business position
of company which are listed under-
Current ratio
It is calculated by dividing the total current assets to the total current liabilities. The
purpose of calculating current ratio is to find out the organization's ability to meet short term
obligations. The ideal current ratio is 2:1 which shows that current-assets are twice of current
liabilities of company. Here, the current ratio of Needy Ltd is 0.98:1 which depicts that current
liability is more than the current assets of company. It has occurred due to the deficiency of
$160000 which has yet not received. As per loan agreement, it must provide extension to
company in order to get credit from its customers.
Quick ratio
This is more tough than the current ratio. In this comparison of debtors, cash, short term
marketable securities are done with current liabilities. The ideal quick ratio is 1:1. The higher
quick ratio indicates that organization have to keep too much cash on hand. The need of higher
quick ratio arises when organization has a difficulty to borrow short-term notes.
Asset turnover ratio
This ratio is also known as efficiency ratio that calculates the organization's ability to
yield sales by its assets. Asset turnover ratio depicts that how magnificently organization can
utilize its assets to yield the net sales from business’s operations. Here, asset turnover ratio is 5
times that is 50 %, which means that the assets of Needy Ltd are 50 % capable of generating

sales which is much better. As organization has yet not get collection of $160000 from its
debtors, so they wanted the extension of one day for repayment of Ltd loan.
Debt equity ratio
Debt to equity ratio signifies that how much part of the Needy Ltd are being financed
with. It is a long term solvency ratio. Basically, it measures the company's capacity of
repayment. It is difficult to pay attention when the organizations have to find out its financial
positions. It could be dangerous trend if the organization is being financed by creditors rather
than its own finance sources. Interest rates of lenders and investors are better protected in event
of a business decline that is why they prefer low debt equity ratio. Here debt equity ratio of
Needy Ltd is 0.17 % which is comparatively low so it is good for them for the easy repayment.
Account receivable turnover
It is a ratio that measures how many times' organization' can collect its average account
receivables during year. The higher accounts turnover ratio shows that organization are
collecting their debtors more frequently. But here the account receivable ratio is very low that is
22 days which indicates that Needy Ltd is unable to recover its debtors.
Comparison of finances to the convertible holders for the agreement.
Convertible notes raise debts that converts equity when business raises an actual equity
round of funding. By this bank offers a loan to the company and instead of loan repayment it
needs preferred equity (Langemeyer et.al, 2016). The process of issuing convertible note is quite
easy. It takes a week of discussion to transfer equity but the convertible note can be issued in
only a couple of days (convertible bonds, 2018). Here, Needy ltd issued convertible notes under
a harmony to maintain net assets, in a particular agreement done as minus all the liabilities
except the convertible notes less than twice the amount of notes which issued. Also, working
capital should be 100 % of the assets. Therefore, due to this Needy ltd was unable to do
collection from the debtors.
But observing financial health of Needy Ltd it can be recommended that bank should
provide the one-day extension to company apart from debtor's collection period. As it has issued
a cheque to its creditors in order to get finance for repayment of the loan.
2.Explain if you believe company met conditions of loan agreement.
Loan agreement is complex document that can save parties involved in it.

Loan agreement is required for safer side of lender to recover the loan. Loan has some essential
requirements which meets the loans' agreement. Need of loan agreement arises when anyone
lends money or renders services without payments. There are some essential requirements which
Needy Ltd must have to meet to fulfill needs of loan agreements are discussed under.
Credit history
Before providing the loan to organization bank will always inspect credit history of
business because before sanctioning of loan banks require personal guarantee that is credit
history of business. Bank will oversee that how much time business take to repay credits to the
creditors. If credit period is low then bank will easily give bank loan.
Collateral
To back up loan from bank, organization must have hard assets. To make sure that bank
can reduce the risks they look on these assets very carefully (Langemeyer and et.al, 2016). The
bank can take collateral to recover its financial loss, if borrowers stops devising in order to
secure loan payment. For instance, if company seeks to have loan on basis of the accounts
receivables, then bank will carefully examine major receivables accounts to make sure about
creditworthiness.
All the details of business finances
Before sanctioning loan, bank will carefully examine financial s of company. Financial
details of company will consist of all pass and currents with their recovery period, cash inflow
and outflow, various financial statements etc.
Complete details on account receivables
The details of accounts receivables includes information about account for examining
credit sales, and payment history.
All details about the accounts payable
Details about account payable includes information about behavior of organization while
repayment.
Information about the business financial statements.
Therefore, financial statements of business tells exact position of business. It provides all
history of business including balance sheet, income statements. Banks need at least three years’
financial history of business.

Agreements on future ratios
The organization agrees to keep some key ratios like quick ratios, current ratios, debt to
equity ratios with some levels. If financial fall below those specific levels in the future, then are
technically in default of the loan.
These are some requirements which Needy Ltd has to meet before financing of loan
agreement. Talking about Needy Ltd.’s financial conditions to meet requirements about loan
agreements. The company has good financial health, as seen in financial statements of company,
it would able to repay loan in an efficient manner. But on other hand company is having problem
to recover its debts from debtors could create some problem for loan agreements.
3. What are the purposes of these conditions in loan agreements
All banks have some conditions to provide loan to a business organization. Providing
loan requires lots of efficiency to the bank. Sometimes, it becomes impossible to recover the
loans from businesses. Financial statements of an organization plays an important role in
providing enough information of the company's financial position which helps banks to decide
whether to give loan or not (Kavzoglu, Sahin and Colkesen, 2014). This financial information of
the Needy Ltd helps in accumulating and reporting financial health and cash flows of a business.
This financial informs assist to take decisions about to manage the business operations, or invest
in it, or to lend money to it. The use of financial statements provides various information to the
financial institutions, creditors, suppliers etc. managers needs the financial statements to tackle
affairs of organization assessing financial health of the business. Therefore, whether to grant a
loan or credit to a business bank utilizes the financial statements. Financial institutions evaluate
the financial health of an enterprise to ascertain chance of a bad loan. Any judgment to lend
must be backed up by an enough asset base and liquidity (Onuand et.al,2017). The purpose of
such condition is mentioned under individually.
Collateral
To secure a loan, borrower offers lender the asset or a property is called collateral. The
lender can seize collateral to recoup its losses, if borrowers stops making the promised loan
payments (Greco, Figueira and Ehrgott, 2016). Unsecured loans are that loans that are secured by

collateral typically have lower interest rates, since collateral offers some security to the lenders
when borrower fail to pay back loans.
Credit history
It plays an important role in finances of business. It is an evidence for business's capacity
to refund liabilities and demonstrated obligation in repaying debts. The credit history of business
consisted of following information
 Number of credit accounts
 Types of credit accounts
 How long each account has been open?
 Amounts owed
 Amount of available credit used
 Whether bills are paid on time
 Number of recent credit inquiries
It helps lender to identify financial information about business which decides that
whether organization will repay the loan which has been taken from banks (Arce and et.al,
2015).
Business finances
Business finances of organization tells bank about financial position of company.
Business finances includes reading of financial statements which helps bank to decide whether to
grant loan or not.
Accounts receivables
Its main purpose is to provide information about all the accounts of the company like
sales account, purchase account, sales account so that proper finances can be made (Michailidou,
Vlachokostas and Moussiopoulos, 2016).
Accounts payable
Its main purpose is to provide Details about account payable which includes information
about behaviour of organization while the repayment.
Financial statements

All major financial statements of a company are considered by the bank. To assess
company's ability to repay loan balance sheet, income statements and the statements of cash
flow are carefully studied by bank loan office (Allen, Sui and Parker, 2017). Therefore, if
borrower goes into bankruptcy bank also considers likelihood of loan recovery in addition to
the ability of company to repay loan.
Future ratios
Bank utilizes the ratios to evaluate loan applications for individuals. Lenders considering
loans to a business uses a variety of ratios calculated from financial statements of t company
seeking to borrow. These financial ratios can provide a lender with key information regarding the
ability of a business to repay a loan.
Therefore, , these all conditions which banks oversees at time of granting loan to the
organizations in a loan agreement. For organizations it is very important to have these
conditions to meet these requirements of bank for loan agreement. If tbank will found all these
conditions of organization is running smoothly then only it will provide loan to t Neddy Ltd.
Bank considers this because many organizations failed to meet these conditions and yet do no
repay the loan that is why banks uses these conditions before granting the loan.
CONCLUSION
On concluding report, it can be easily that decision analysis plays a crucial role to assess
financial position of company. Here in this report t various ratios like current ratio, quick ratio,
debt equity ratio, asset turnover ratio and account turnover ratio were contrasted in order to find
out Needy Ltd’s financial health. Present report has also discussed various conditions and
requirements of bank loan agreement which is almost fulfilled by company. The report has also
provided purpose of such requirements to analyze information contrasted by company to bank.
By summing up, this report it can be said that decision analysis plays an important role for
decision makers in complex situations. The frame work of decision analysis assist decision
maker think consistently about business goals, aims, orientation, and constitution and quality and
other essential aspects of difficulties and their inter-relatedness.

REFERENCES
Books and Journals
Allen, T. T., Sui, Z. and Parker, N. L., 2017. Timely decision analysis enabled by efficient social
media modeling. Decision Analysis. 14(4). p p.250-260.
Arce, M. E. and et.al, 2015. The use of grey-based methods in multi-criteria decision analysis for
the evaluation of sustainable energy systems: A review. Renewable and Sustainable
Energy Reviews. 47. pp.924-932.
Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York:
Springer.
Kavzoglu, T., Sahin, E. K. and Colkesen, I., 2014. Landslide susceptibility mapping using GIS-
based multi-criteria decision analysis, support vector machines, and logistic regression.
Landslides. 11(3). pp.425-439.
Langemeyer, J. and et.al, 2016. Bridging the gap between ecosystem service assessments and
land-use planning through Multi-Criteria Decision Analysis (MCDA). Environmental
Science & Policy .62. pp.45-56.
Marsh, K., and et.al, 2016. Multiple criteria decision analysis for health care decision making—
emerging good practices: report 2 of the ISPOR MCDA Emerging Good Practices Task
Force. Value in health. 19(2). pp.125-137.
Marttunen, M., Lienert, J. and Belton, V., 2017. Structuring problems for Multi-Criteria
Decision Analysis in practice: A literature review of method combinations. European
Journal of Operational Research. 263(1). pp.1-17.
Michailidou, A. V., Vlachokostas, C. and Moussiopoulos, Ν., 2016. Interactions between climate
change and the tourism sector: Multiple-criteria decision analysis to assess mitigation and
adaptation options in tourism areas. Tourism Management .55. pp.1-12.
Onu, P.U., and et.al, 2017. Evaluation of sustainable acid rain control options utilizing a fuzzy
TOPSIS multi-criteria decision analysis model frame work. Journal of cleaner
production. 141. pp.612-625.
Online
CONVERTIBLE NOTES. 2018 [Online]. Available through:
<https://www.investopedia.com/terms/c/convertiblebond.asp>.