FNS50315 Diploma of Finance and Mortgage Broking Management - Assignment 3 & 4

This document contains the solutions for Assignment 3 and 4 of the FNS50315 Diploma of Finance and Mortgage Broking Management course. Assignment 3 focuses on the information gathering, analysis, and risk assessment processes involved in mortgage broking. It covers topics like client communication, documentation, and complex transaction handling. Assignment 4 delves into the serviceability analysis of Wholesale Butchers Pty Ltd, examining its financial ratios, debt servicing capacity, and overall financial health. The analysis provides insights into the company's ability to meet its financial obligations and its potential for future growth.

FNS50315 Diploma of Finance and
Mortgage Broking Management
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Contents
Assignment 3:.............................................................................................................................3
Question 1:.............................................................................................................................3
Question 2:.............................................................................................................................5
Question 3:.............................................................................................................................7
Question 4:.............................................................................................................................9
Question 5:...........................................................................................................................11
Question 6:...........................................................................................................................12
Assignment 4: Servicing and Research Assessment................................................................13
Question 1............................................................................................................................13
References:...............................................................................................................................18
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Assignment 3:
Question 1:
Information required with appropriate listening and questioning:
The lending requirements of the clients are closely associated with the type of personal
conditions and the circumstances prevailing with him in the current scenario. Therefore it is
necessary to carefully and actively engage with the client for gathering the type of
information required regarding the loan extending (Marshall, 2016). The type of information
will include:
 Personal details – The personal details of the person demanding the loan will directly
influence the purpose and aim of acquiring the loan.
 Family background of the person – The family background plays a crucial role in
determining the social status of the person and the history of past obligations
concerned with the family.
 Professional history and background – The professional history will largely impact
the sources of incomes concerned with the person acquiring the loan.
 Needs and purposes of the loan required – The various needs and purpose for which
the person is taking the loan are of great importance as a sound business plan r
investment opportunity will result in timely benefits to be accruing to the person.
 The details and prospects of repaying the loan – The details must be taken about the
plan of the person for relaying the loans.
 Income trend of the client – The sources of incomes and structure of its earning
capacity for future scenarios will also require to be investigated in this process.
The collection of quality information requires planning in advance the questions to be asked
and the information necessary for assessing the client situation. A proper questionnaire must
be prepared and a personal interview can be fixed with the client in order to have full
information. The broker must be well aware of the importance and significance of careful
listening and questioning the client as the information gathered can be great help in assessing
the actual situation of the client (Nawang, et. al., 2011).
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Significance of professionalism, interpersonal skills and appropriate language:
The professionalism while interacting with the client is of utmost importance for the broker in
maintaining a healthy relationship in future. The communication skills must be advanced in
order to engage the client in interviewing process and the interpersonal skills will play a
major role in that scenario. The broker must communicate with the client in the appropriate
language which is in conformity with his or her cultural languages. There should be no
ambiguity regarding the understand ability between the client and the broker. The continuous
interaction will help in maintain a strong bind and communication throughout the complex
process of broking (Nyanchama, 2014).
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Question 2:
Templates to be used:
The various types of templates can be used in order to assess and identify the client situation
and they can be of real help in taking the decision regarding the acceptance of the loan
extension request of the client. The various types of templates can provide additional
information to the broker reading the suitability of the client and they can be used as an
evidence for future purposes (Marshall, 2016). It is necessary to get them filled with the
client concerned.
Personal goals The information about the career
and the business of the client
The lifestyle he is engaged in.
The family of other influences
The objectives or future goals
Asset position
and cash flow
The number and types of assets
The associated level of encumbrance
The sources of incomes during the
year
The position of the cash flow
Financial literacy The knowledge of the product and
basic information
The awareness regarding the
economic environment
The issues regarding tax, gearing
and debt structure
Risk Tolerance Motivation of the buyer
Variations in the attitude regarding
the changes in rates
The cash trend of the buyer
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The preferences about the equity
Procedures for critical implementation and documentation required:
There must be maintained a fiduciary relationship with the client in order to prevent the
occurrence of complex misunderstanding and therefore appropriate documentation is required
by collecting all the templates and preserving them as the confidential data of the client. The
conversation which has occurred on the telephone must be properly diarised and this will
ensure adequate collection of data for decision making purposes. The documentation will be
required for making recommendations to the client and explaining him with the loan structure
suggested to him in context to his requirements (Nawang, et. al., 2011).
The technology along with the special software and templates that can be used:
The technology in the brokerage work can be applied with the application and utilization of
the various types of:
 Organisational software
 Computers
 Data researching devices
 Financial or organisational templates
 Devices of telecommunication
The use of special software which are uniquely build for collecting the information can be
utilized in order to adequately collect and process the data of the client and provide the
necessary judgements (Nyanchama, 2014).
The various types of software that are available in the market must be utilized in order to
generate and record the various details of the client and accompanying a contrasted data so
that details can be gathered any time by the broker in immediate circumstances. The data
techniques and the value added reporting feature embedded in these types of softwares will
enable the broker to critically examine the present status of the client in reference to his loan
requirements.
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Question 3:
Analysing and researching into the loan situation:
The various clients in the finance business differ in their economic and social class which
significantly impact the loan requirements associated with the client. The complex features of
the situation of the client may include:
 Real estate needs of the client
 Education purposes
 Business expansion or development needs of the client
 Housing and finance needs
Thus there is a need to carefully understand and analyse the situation of the client while
identifying the varied level of opportunities and the different constraint that can be
recognized in obtaining the type of loan. The understanding of the loan structure and the
standards should be adequately developed and consideration and equal importance should be
given to them.
The process concerned with rejecting the inappropriate adoptions of the client is as
follows:
 The personal and professional information if the client must be carefully identified
and analysed in order to judge the credibility and solvency.
 The financial consideration must be taken into account while interpreting the financial
documents of the client (Pearce, et. al., 2013).
 The consideration of financial ratios is really crucial in this process where the actual
situation of the current business and position can be reflected and the decision can be
based on these financial ratios.
 Risk assessment must be taken after conducting a risk identification and analysis
process of the client and his situation.
 If the scenarios favours the client then the loan must be approved otherwise the same
should be rejected.
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Dealing with complex transactions of the client:
The complex transaction of the client can take form of the difficult situations where the
broker might needs to implement certain types of steps in order to ensure the right amount of
expertise to be involved in performing the broking function:
 Identification and development of various types of complex broking options for the
client the first step in this process will require identifying the complex broking
options of the client based on teg current situation of the economic parameters and
financial viability operating in the economy.
 Identification of complex broking needs of the clients – The next step will be
concerned with identifying the complex broking needs of the client in order to match
the current economic and social influences concerning with his requirements.
 Researching and considering the complex broking solutions for the client
concerned – The research must be made for providing the appropriate amount of
resources that can assist him in making solutions for these complex needs
requirements. The solutions will take form of the mortgage required by the client and
the same shall be made available to the client timely and adequately.
 Select and gather appropriate options for the purpose of client review – The
gathering of review options will be suitable in the circumstances where the overall
process needs to be optimised.
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Question 4:
Risk evaluation and assessment:
The risk evaluation and assessment process will involve certain steps to be followed of
successfully implementing the risk management process:
 Establishing the context - The establishment of the criteria is an important part as it
will affect the overall process of risk identification and assessment. The severity of
the risk will depend on the circumstances of the market and the industry in which the
business is operating. The valuation practices must be considered while establishing
these criteria (Pearce, et. al., 2013).
 Identification of the risk – The identification of the risk will be concerned with
performing the basic test and identifying the results. The categorisation of risk will be
a critical issue in which risk can be of two types containing credit risk and operational
risk.
 Assessment of risk – The assessment of risk will be concerned with identifying the
ability of the client in paying its debt obligations during the lifetime of the loan and
recording the results while documenting the same appropriately.
 Communication of risk – There is a requirement to adequately communicate the risk
and the results to the stakeholders and maintaining a proper and timely amount of
communication so that it can be minimised.
 Monitoring and managing the risk – The risk can be managed by the broker by
effectively monitoring the progress of the loan. The adverse situation must be
immediately communicated to the stakeholders so that their impact can be minimised
as per the acceptable level (Nyanchama, 2014).
Stakeholder’s involvement and regulations:
It is suggested to continuously engage the internal as well as the external stakeholders of the
company in the loan process of the company. The various stakeholders in the loan process
can be associated with the client which may be:
 Employees
 Customers
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 Suppliers
 Associates
 Partners
 Related people of local authority
 Etc.
These stakeholders must be properly identified and should be communicated and informed
with all the risk evaluations made as they will be directly affected with the loan process
concerned and any risk which can be affected during the loan time period. It is necessary to
comply with the industry rules and regulations while complying with the basic laws of the
country (Robu & Istrate, 2015).
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Question 5:
Impact and other considerations:
The documents as recorded by the client can be in the form of the impact associate with the
loan availed to the client on the various stakeholders. The fess charges and the commissions
of the broker will be specifically mentioned in the loan submission details of the loan process.
The condition of the lender and the securities offered must be clearly stated in the loan
documents provided and they must reflect the actual condition of the client situation. The
broker can take the legal advises or the external confirmation from the valuation officers
while establishing the adequacy of the client loan acceptance. The confirmation form third
person can be documented as an n additional proof in future purposes (Shouman, et. al.,
2016).
Developing rapport with client and negotiate effectively:
It is necessary for the broker to develop an effective rap porting with the client in order to
gain trust of the client in the present arrangements provide by him and thus will require
availability of proper information through adequate documentation of the client. The
negotiations must be performed in an effective manner in order to assure that the
arrangements are made adequately and the brokerage will be reasonable which has been
charged by the client. The overall arrangements will help in easy processing of the loan.
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Question 6:
Identification and response to client concerns:
The broker needs to communicate to the client various advantages and disadvantages of the
options associated with the loan to the client and the documents must be given in an
responsive manner in order to prevent the client form any misunderstandings and all his
ambiguities must be cleared.
Exercise of restraint while dealing with conflicts:
The various restraints must be established while dealing with various complex issues in the
loan application process like availability of funds, taxation issues, and mortgage security
issues concerned with the client. The help regarding the mathematical and operational
formulas of research can be taken by the broker. The client must be advised to carefully listen
and understand the issues and have an idea of the risk associated. The ultimate step will thus
be concerned with the gaining of agreement with the client (Robu & Istrate, 2015).
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Assignment 4: Servicing and Research Assessment
Question 1
Part a – Ratio Analysis of Wholesale Butchers Pty Ltd
Ratio 2014 2015 Risk Grade
1. Current Ratio
= Current
assets/current
liabilities
1.01 1.10 In the year 2014 the current ratio of the
company was 1.01 which has increased in
the year 2015 to 1.01 which represents that
the company is focusing on strong liquidity
position to be maintained in order to service
its immediate liabilities concerned. The
sound liquidity ration thus represents that
the company is at low risk grade (Shouman,
et. al., 2016).
2. Quick Ratio
(Acid Test)
Current Assets –
Inventory – Prepaid
expenses/Current
liabilities
0.84 0.91 The quick ratio of the company states that
the company is maintaining sufficient
amount of highly liquid assets in the form of
cash and other equivalents which proves that
the company has low risk in terms of
solvency position.
3. Return on
Equity (ROE)
Net profit/ Total equity
0.72 0.70 The decline in the return on equity can be
seen over the last year but it is sufficient in
term is of the market and industry averages
which requires the return on equity to be
more than at least 50%.Therefore the
company is on the moderate risk position in
this aspect.
4. Return on
Assets (ROA)
Net profit/ Total Assets
0.33 0.38 The company is generating sufficient return
on the assets employed by the company and
the return of 38% is adequate for
maintaining future growth and development.
Thus the company is moderately risked in
this situation.
5. Debt to Equity
Ratio
Debt/Equity
0.49 0.22 The capital structure of the company must
be organised in order to generate sufficient
returns and earn profits for paying off the
debts and loans. The debt equity ratio of 1 is
considered ideal for this type of industry and
therefore the company will fall in high risk
category (Kaplan & Mikes, 2012).
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6. Debt to Asset
Ratio
Debt/Total Assets
0.22 0.12 The low risk in solvency can be established
by this ratio as the proportion of debt is
really small in the capital structure. But this
causes reduction in utilization of the debt
capital of the company and therefore lower
returns are accrued.
7. Leverage Ratio 0.54 0.46 The company is maintaining an average
leverage ratio which shall be considered
suitable for the company and therefore low
risk is associated here.
8. Interest Cover ratio (ICR)
– Existing Debt
10.56 12.64 The interest coverage ratio shows that the
company is maintaining sufficient profits in
order to pay off all its interest liabilities and
therefore the increase in this ration will put
company in low risk category (Kaya, et. al.,
2014).
9. Debt Servicing Cover
Ratio (DSCR) – Existing
debt
3.01 The ratio of 3 is considered sound as the
company solvency position is stable and
sound in order to pay off its debt
obligations.
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Part – B Serviceability analysis of Wholesale Butchers Pty Ltd
30 June 2014 30 June 2015
Values in $000 Values in $000
Net Profit Before Tax 32,778 35,825
Potential Add-Backs
Interest 4,372 3,735
Depreciation / Amortisation 9,000 7,650
Directors Salaries / Superannuation
Other non‐cash items 500 500
Extraordinary / Non-recurring expenses (may be
Plus or Minus)
Earnings Before Interest, Taxation, Depreciation,
and Amortisation (EBITDA)
46,650 47,710
Taxation allowance **
Available for Debt Service
Interest Cover Ratio 7.49 9.59
Proposed Deductible Interest Costs:
Existing $_____ k @ ______% *
Plus Proposed $ 55 k @ 9 %* 4.95
Total Proposed Interest Costs
Proposed Interest Cover (Note 6)
(EBITDA divided by Proposed Interest Cost)
Debt Service Cover Ratio 3.00
Existing O/D or Credit Card assumed fully drawn
at
prevailing interest rate interest only*
Existing Loan Repayments NIL 10961
Proposed Loan Repayments
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Total Commitment Proposed
DSCR (Note 7) (Available for Debt Service divided
by
Total Commitment Proposed)
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Part- C Serviceability Analysis Comments
The analysis regarding the serviceability of the company is conducted by considering the
ability of the company to service and timely meet out the obligations and the interest
payments related to the loan dues of the company. The serviceability report of Wholesale
Butchers Pty Ltd will be analysed on the basic of the incomes and expenditures related with
the company. There are following major observations related to the serviceability analysis of
the company:
 The net income of the company after meeting out all its obligations have increased
over the last year and the debt service ratio is sound for the company in the year 2015.
The debt service ratio is sound in the form of 3 (Kaplan & Mikes, 2012).
 By referring to the history of the company over the last two years and working out the
interest ration it can be identified that the company is regularly paying its debt
commitments regrading to various instalments and interests and therefore is no risk
related to solvency and debt serviceability of the company.
 The liquidity position of the company is sound as the current ratios are stable and is
more them and quick ration is close to 1. Thus, the working capital requirements of
the company can be adequately fulfilled.
 The earnings of the company has increased from $46650000 to $47710000 which
shows that the operational capability of the company is adequate and efficient
operations has been carried out in the company and thus more growth prospective are
associated with the company.
 The existing loan payment and proposed loans are within the acceptable range and
does not affect the capital structure of the company in a bad way thus there is no risk
associated with lending the loan to the company (Kaya, et. al., 2014).

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References:
 Kaplan, R. S., & Mikes, A. (2012). Managing Risks: A New Framework. Retrieved from
https://hbr.org/2012/06/managing-risks-a-new-framework
 Kaya, O., Schildbach, J., AG, D.B. and Hoffmann, R. (2014). SME financing in the euro
area. New solutions to an old problem. EU Monitor–Global Financial Markets. Deutsche
Bank Research, 14, p.2014.
 Marshall, D. (2016). Accounting: What the numbers mean. McGraw-Hill Higher
Education.
 Nawang, W., Rasyidah, W., & Bashir, M. S. (2011). Islamic and Conventional Unit
Trusts in Malaysia: A Performance Comparison. Journal of Islamic Economics, Banking
and Finance, 7(4), 9-24.
 Nyanchama, O. P. (2014). Determinants of financial performance of unit trusts in Kenya
(Doctoral dissertation, SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI).
 Pearce, D., Barbier, E. and Markandya, A., (2013). Sustainable development: economics
and environment in the Third World. Routledge.
 Riley, E. B., Fieldston, E. S., Xanthopoulos, M. S., Beck, S. E., Menello, M. K.,
Matthews, E., & Marcus, C. L. (2016). Financial analysis of an intensive pediatric
continuous positive airway pressure program. Sleep, 40(2), zsw051.
 Robu, I. B., & Istrate, C. (2015). The analysis of the principal components of the
financial reporting in the case of Romanian listed companies. Procedia Economics and
Finance, 20, 553-561.
 Shouman, E. R., El Shenawy, E. T., & Khattab, N. M. (2016). Market financial analysis
and cost performance for photovoltaic technology through international and national
perspective with case study for Egypt. Renewable and Sustainable Energy Reviews, 57,
540-549.
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