BI Norwegian Business School: Credit Check Report - SFU 2999

This report provides a detailed analysis of a credit check assignment, addressing key aspects of financial assessment and risk management. It begins by examining the interpretation of the Norwegian Accounting Act's requirement for a true and fair view in financial statements and its relevance to credit evaluation. The report then delves into the assessment of a company's liquidity, outlining crucial ratios and techniques. Furthermore, it explores business and operational risks, using a case study of a sports shop chain to illustrate these concepts, including loan assessment and collateral considerations. Finally, the report analyzes the information needed for loan acceptance, evaluating the borrower's credit history, repayment capacity, and the overall economic situation to determine the viability of a loan offer.

Running head: CREDIT CHECK
CREDIT CHECK
Name of the student:
Name of the university:
Author Note:

1CREDIT CHECK
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................3
Answer to Task 1...................................................................................................................3
Answer to Task 2...................................................................................................................4
Answer to Task 3...................................................................................................................5
Answer to Task 4...................................................................................................................7
Conclusion................................................................................................................................10

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Introduction:
The aim of the assignment deals with the various types of risks which are associated
with the business of the company and the key fundamentals which are the policies and the
produces. The credit check is significant for the bank and company in order to make sure that
the company is free from the material misstatement and the company poses enough liquid
cash to meet its due obligations. Further analysis of the company’s credit payable capacity is
conducted in the study in order to ensure that the company has enough working capital to
meet the long term loans of the business.

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Discussion:
Answer to Task 1
Norwegian entities with securities which are listed on a regulated market needs to
prepare the consolidated financial statements which is further based on the rules related to the
IFRS. The financial statement does not necessarily needs to be based on the aspects or rather
the principles of the IFRS. The regulation on financial services and insurance also falls under
the norms of the IFRS which may further be based on the Norwegian GAAP which is also a
simplified version of the IFRS which also involves the requirement’s and also involves
certain exemptions from the evaluation of the transactions which rather related to the
intragroup. The financial statement of the companies are prepared as per the rules or the
standard mentioned in the IFRS. The accounting standard followed by the Norwegian
accountant is the generally accepted accounting principles or the Norwegian GAAP. It is
significant to follow the rules associated with the accounting information’s and the necessary
measures are needed to be undertaken as per the principles attached to it.
The accounting information’s of the company must show true and fair view of the
business according to the financial statements which are provided to the company. This is
significant to show the true and fair view which further means that the financial statements of
the company is free from the material misstatement. The guidelines and the principles
attached to the Norwegian GAAP must be adhered to the true and the fair view of the
business in that case. The growth of the company depends upon the true and fair view of the
business in that case and the stakeholders of the company will further invest in the business
of the company which such current or future facts and figures.

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Credit assessment is a type of assessment which an investor or bond portfolio
manager performs some of the significant policies on companies or other debt issuing
organization. It is order to evaluate the ability or rather the potential of an investor to meet the
obligation related to debts. The credit assessment requires some of the significant accounting
information’s in order to understand the default risks which are associated with the
investment in a particular organization. The significance of the rule is to understand and
implement the accounting policies which must represent the true and fair view of the
financial statement which is required for providing the credit assessment. The approval for
the term loan is only possible when the financial statement of the company is free from the
material misstatement.
Answer to Task 2
There are significant accounting tools and techniques which are required in order to
evaluate the liquidity position of the business. The evaluation of the company’s most liquid
asset is conducted and duly analyzed in order to understand the financial position of the
business. The evaluation of the short term liabilities and the long term liabilities of the
business in that case. The liquidity of the business must be ascertained by the organization in
order to understand the current flow of cash in the business. Some of the significant common
ratios of the firms are duly evaluated and analyzed. Then the upper level management of the
company understand the difference or the variance in the financial position and takes
necessary rules or measures in order to enhance the position of the current business policies
by making changes to the norms of the company. Evaluating the ratios would rather help to
understand the financial health of the business along with the necessary measures which are
needed to be undertaken according to the estimates if needed. Effective utilization of the
liquid asset must be undertaken in order to generate huge return out of the utilized assets
(Smales 2016).

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The things which must be considered as per the necessary conditions is that it's
important to keep in mind the asset's liquidity levels as it would take certain time to convert it
into cash. Further the cash can be obtained by selling the assets of the company in that case
by borrowing against an asset. It is significant for the company to pay the amount of loan
along with the interest to the bank which is only possible when the working capital of the
company is effective. Analyzing the ratio as per the financial statement of the company is
duly conducted as the risk of the company can be ascertained along with the liquidity position
of the company (Härle, Havas and Samandari 2016).
Answer to Task 3
Ascertaining the business risks and the operational risk is mainly conducted by the
business analyst and the risk associated with the business strategies must be evaluated and
duly analyzed. The operational risks of an organization is the process of the internal decision
making and the practices associated. Business risks involves the risk associated with the
products and the strategic decisions associated with company. Operational risks associated by
implementing the internal controls which further manages the internal risks which are
associated with the perspective of the company. It is important to understand the major risks
which are associated with the business of the company and hence some of the major
decisions in that case are needed to be taken. Business risks are those risks which rather help
to manage the risks according to some parameters or degree (Bruno and Shin 2015).
The loans associated with the two family-owned holding companies have necessary
collateral the inventories and hence the risks associated with the business is less. The possible
risks which are associated with the bank is that the chance of NPA which is low here which
means that the chance of default on loan will be less as there are enough collateral associated
with the business of the company (Li and Zhang 2019). The potential risks which are
associated with the long term loan is significantly high as the amount on the default on loan is

6CREDIT CHECK
similarly high in that case. The limit of the overdraft facility provided by the bank will be up
to NOK 5 and hence such facility will be exercised within the limit of both the companies.
The profit margin and the return of the company is 2% and 6% respectively which means that
the profitability position of the companies must be enhanced in order to accompany the
necessary changes for further enhancing the profitability position of the company in that case.
The operating revenue of the company were NOK 160 million which further means that the
company have enough reserves as profit. The company has the necessary potential to
eliminate the risk associated as the profit margin of the company is pretty good. The amount
of loan opted by the company from the bank is pretty low compared to the amount of profit
the company is making. As the business of the company has the necessary collateral attached
to the loans which further eliminates the risk associated with the bank. The net incomes of the
bank is higher after considering the tax and the company will easily able to meet the
obligations of the business in that case. The reputation of the business will further enhance
the growth of the financial aspects of the firm.
In order to minimize the business risk of the firm, there are certain parameters which
are needed to be considered in that case. The conditions which are it is needed to develop an
effective plan, perform quality control test from various aspects of the firm. Then it is needed
to keep standard or good records of the firm which matters regarding the application of loan.
It is essential to diversify the loan amount of the company so that the return which is
generated from the business is enough the payoff the long term loans and obligations. It is
needed to keep in reserve the return which is generated from the utilization of the investment.
The invested value of the firm must be effective so that the company is able to generate the
profit or return in order to make the business of the company much more effective.
In order to eliminate the operational risks of the business, it is further needed to
understand the internal controls of the business which means that the effectiveness or rather

7CREDIT CHECK
efficiency of the working capital of the companies. Effective flow of cash in the companies
will further help to meet the obligations of the business in that case. As per the analysis it can
be said that the company must further strengthen the effectiveness of the internal control
management (Bluhm, Overbeck and Wagner 2016). This will help the management of the
company in order to meet the obligations of the company on the perspective of the long term
loan which is availed by the company from the bank. Due to such reputation of the company,
it is significant for the upper level management of the company to take some of the major
decisions to further enhance the financial position of the business (Bruno and Shin 2015).
The risks will automatically be optimized if some of the significant changes are made like the
operational changes in the system. Further up gradation and optimization in the system of the
companies and providing training to the employees will further enhance the financial position
of the business (Huang, Shi and Zhou 2019).
Answer to Task 4
The significant information’s which are needed to be analyzed and collected in order
to make the acceptance of the loan offer which are the credit history, purpose of the loan
regarding such business, it further needed to identify the potential collateral associated with
such loan, the capacity to repay the loan, the need for the capital and finally analyzing the
overall economic situation or rather the present scenario of the company. The business plan
regarding the shopping center must be analyzed and the overall project cost of the business
200 million. The current strategy which is adopted by the company is that 70% on loan and
30% on equity which means that the company is adopting the debt financing strategy. The
building loan taken by the bank is about NOK 140 million and hence necessary collateral are
needed to be identified so that the chance of the loan default may be taken into account in that
case. In order to get more offer it is significant in order to analyze the potential of the
company regarding the past and the current financial position of the business (Alshatti 2015).

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From the above table of the firm, it can be said that the business of the company after the
adjusting the income and liabilities of the company will be able to finance 153.6 NOK
million. Investing a part of the total income will further help the company in order to generate
huge return from the business. This further signifies that the company will not be in a
position of defaulter as the profitability strength of the company is quite strong which will
further help the business of the company to prosper in the future prospect.
The most significant information which is needed to be collected are discussed and
after analyzing the same, the bank will further be confident in order to provide offer on the
loan provided to the company. Before submitting the loan applications to the bank it is
needed to analyze the above discussed loan strategies ion order to make the acceptance of the
building loan undertaken by the company. In case of debt financing, it is significant in order
to check the collaterals and here in this case as there is lack of financial assets of the company
as the company does not have any other asset left in the inventories of the firm. It is
important to make sure that the company has enough working capital to meet the long term
obligation of the business. Another significant thing is that the upper level management of the
company must adopt certain effective strategies so that the productivity of the firm increases
accordingly.

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The capacity to repay the loan must be analyzed in a detailed manner and there are
insufficient collateral as the company is running out of the fixed assets of the firm and hence
certain effective measures are needed to consider as per the other operational aspects of the
firm. The operations must be analyzed in such a way that the loopholes of the business must
be kept into account. If the company satisfies the above discussed the parameters then it will
definitely help the bank to provide certain offers to the company (Laeven, Ratnovski and
Tong 2016).
The offers of the bank will definitely help the company in order to repay the loan
faster. Enough working capital of the firm will further help the firm to meet the debt
obligations. The leverage must be effective which further means that the investment of the
debt capital becomes too much risky and hence the firm needs to adopt some of the
significant strategies to make sure that the effective investment is conducted. The liquidity
and efficiency of the company must be analyzed so that the company have enough capital to
run the business of the company in that case. The leverage risk must be optimized so that the
company must be able to meet the daily obligation otherwise such kind of leverage can result
in the debt trap of the company. In case of debt trap the company will face difficulty such as
dissolution of the company in that case. Hence, in this case the analysis of the financial ratios
in that case is certainly significant in order to make sure the current business position of the
company is effective and efficient.

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Conclusion
From the above discussion it can be concluded that as per the above analysis of the
study regarding the risk which are associated with the business. The rules and regulation of
the business of the company is duly analyzed in that case where it is further found the
business of the company has enough collateral. This will further help the company as the
profitability position of the company is good and the company will meet its due obligation
where the chance of default will be less. The financial position of the business is analyzed
duly in the above study and further tools and techniques have been provided in that case.

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References:
Alshatti, A.S., 2015. The effect of credit risk management on financial performance of the
Jordanian commercial banks. Investment Management and Financial Innovations, 12(1),
pp.338-345.
Bluhm, C., Overbeck, L. and Wagner, C., 2016. Introduction to credit risk modeling.
Chapman and Hall/CRC.
Bruno, V. and Shin, H.S., 2015. Capital flows and the risk-taking channel of monetary policy.
Journal of Monetary Economics, 71, pp.119-132.
Härle, P., Havas, A. and Samandari, H., 2016. The future of bank risk management.
McKinsey on Risk, (1).
Huang, J.Z., Shi, Z. and Zhou, H., 2019. Specification analysis of structural credit risk
models. Available at SSRN 968020.
Laeven, L., Ratnovski, L. and Tong, H., 2016. Bank size, capital, and systemic risk: Some
international evidence. Journal of Banking & Finance, 69, pp.S25-S34.
Li, G. and Zhang, C., 2019. Counterparty credit risk and derivatives pricing. Journal of
Financial Economics.
Smales, L.A., 2016. News sentiment and bank credit risk. Journal of Empirical Finance, 38,
pp.37-61.