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Muhammad Afzal
Azhar
Amir
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Thanks to Almighty Allah, Who gave us the strength to accomplish this Case
Study.







Thanks to Respected Prof. Nisar Ahmad for his hard work throughout the
semester.

Due to his hard work, we are able to complete this Case Study.

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Economy(Andromeda)
Sector
Orion
Democratic country

Population of about 29 million

Agriculture, but a significant industrial infrastructure has
developed in the past 15 years.

As a result of an economic slowdown in the early and mid
1980s, the countrys economic development in recent years
has been directed more towards the export sector
Gdp = 62 million usd approx 4 5%

Growth= 6 7%

Inflation = 15- 18%

Devaluation of currency = 10-12%

No political instability

Sector
Orion

Taurus brothers 24 years ago to produce high precision
metal parts.

Company have a positive relationship with Andromeda
Tractor Works

Recently initiated higher precision production for
Pegasus Auto Plant. Product quality has been good, but
spotty recent history in dependability and profits.

Arrival of Scorpio three years ago has helped remedy this
in productivity turnaround.


High precision metal works, with variety of products
capability

Primarily tractor axle and transmissions

Now producing higher precision automobile universal
and rear axle assemblies

Perceived high quality workmanship

Sales breakdowns: Tractors 55% - Automobile 45%

Orion Industries medium sized metal works with
annual sales of about Lcy 250 million in business
for 24 years in Perseus (bout 60 km away).

Main product axle and transmission assemblies
for tractors, working as a subcontractor to
Andromeda Tractor Works.

Orion Industries wants to develop relationship
with Libra Bank


Libra bank is a regional bank

Libra bank is a full service bank with about Lcy 10
Billion in assets.

Libra bank financing several major manufacturing
projects.

The industrial sector represents the about 40% of
the Libra loan.

External


Invitation to visit

Financial Request

According to Orion `We would like to
establish a short-term facility for Lcy 40
million`

Concrete block plant building was old but in fairly good
condition.

There were several warehouse areas within the building
for storing raw materials

Work force apparently well trained

Plant is old but in good order

Out of the way location but good access

Imported machinery -- used, but in good shape

Gemini bank
Principal bank has been Gemini, with some
lending by Sagittarius.
Latter relationship being terminated, due to
banks problems.
Gemini products include short-term lending,
occasional equipment loans booked through
Andromeda Development Bank, and payroll and
current account products.

Relationship with Banks
Gemini bank
Sagittarius Bank

Relationship with Customers
Andromeda Tractor Works (ATW)
Pegasus Auto Plant (PAP)
Gemini Bank
Gemini Bank told that they had a good relation
with Orion.

Andromeda Tractor Works(ATW) says that
Orion is good track record. The quality of
work is excellent.
Management team:-
There are two key people
1. Cost accounting
2. MIS
Pegasus Automobile Plant (PAP):-
Procurement manager said that they are pleased
with the relationship
Top quality of products
Timely delivery



Quality Confirmation from PAP and ATW
The procurement manager reported, We are pleased with
the Orion relationship. Their product is top quality and
management is serious about on-time delivery.

credit relation with GEMINI bank

Lien on machinery to be acquired (worth
approximately lcy 45 million).

Lien on existing machinery and mortgage on
new construction with combined value of lcy
25 million.


AZHAR
The banker must analyze the financial statements
of the Orion Company to:

Determine the financial soundness of the firm
Measure cash generation capacity

The anticipated future financial growth is now a
more pressing concern for the banker.

Cash flow history help to project business
cash inflows and outflows

Lender use it to predict the ability of your
business to generate cash to repayback loan

Question regarding account receiveable
Question regarding net income per sold
Question regarding account payable
Information on other credit relationships
Short term goals
Long term goals

Sagittarius bank

Andromeda development bank

We are budgeting annual sales of Lcy 290 million
which would be about a 19% sales increase

We are trying to enter into longterm contract
with PAP and ATW, and may be goes upto 25% and 35
%

In terms of net income, were shooting for a return on
sales (ROS) of 8% based on a decrease to 71% in the
CGS/Sales margin and to 11.5% in selling, general, and
administrative expenses/sales. This will be achieved
through cost cutting and increased efficiency
We see a strong future for the automobile sector in
Andromeda, not only for the domestic market but for
exports as well, and we anticipate being an important part of
this development
Our relationship with the Pegasus Auto Plant is extremely
valuable because the major U.S. multinational owner of PAP
has its own needs in the USA.
multinational car producers, to maintain the viability of their
domestically produced cars, they will have to maintain or
lower costs by outsourcing many of the parts. This is where
we come in. We feel our quality is now approaching theirs,
but our prices in dollars are cheaper
Customer
2014
Sensitivity
2014
Sales Growth 35 % 20 %
CGS/Sales 71.0 % 73.0 %
SGA/Sales 11.5 % 13.0 %
Interest 12,000 16,000
Income Tax Rate 30 % 35 %
Net Income/Sales 8 % ?
Cash & Marketable Securities Level 4,000 3,000
Days Receivable 80 100
Days Inventory 110 140
Other Current Assets Level No Change 5,000
Prepaid Expenses Level No Change 3,000
Days Payable 40 30
Accruals Level 13,000 11,000
Taxes Payable Level 5,000 4,000
Capital Expenditures 5,000 7,000
Other Non-current Asset Increase +1,000 +1,000
Reduction of Long-term Debt 5,255 5,255
Other Long-term Liabilities Level 16,000 15,000
Dividends 5,000 0
Small customer base
age of plant
Overly ambitious goals
Lack of technology


Growing company
Professional, experience personel
Quality product
Strong financial situation
Strong leadershiup

The financial statements of the company give
Scorpio a great deal of credibility.

Because of Orions present strong capitalization,
the firm has a great deal of creditworthiness to
bank.

The bank has been gathering a great deal of credit
information about Orion Industries and analyzing
this information for initiating a banking relationship
with the company.


AMIR
COMPARATIVE STATEMENT OF FINANCIAL CONDITION
Name: ORION INDUSTRIES Location: ANDORMEDA
Currency: LCY IN THOUSANDS Auditor: CAPRICORN & CENTAURI
X3 Actual X3 Customer
Projection

X3 Sensitivity
Projection

Current Ratio 2.3 2.3 1.7
Quick Ratio 1.1 1.1 .8
Leverage ratio 0.87 0.83 1.25
Days Receivable 80 80 100
Days Payable

39 110 30
Net Income% of
Sales

16.0% 27.6% 12.06%
Credit Facility and Terms: (Lcy 000s)

Short-term Line of Credit New Facility

Amount: Lcy 40,000
Purpose: Short-term loans, or discount of trade bills with recourse
Payments: In full at maturity, or as collected for trade bills
Tenor: Up to 180 days
Interest: Base rate or discount rate + 3% p.a.
Commission: 1% flat on opening
Commitment Fee: .25% p.a. on undrawn facility
Support: 1) Lien on trade receivables for 120% of outstandings for
loans
2) Personal guarantee of B. Scorpio and M. and N. Taurus for
full amount of facility
3) Life insurance policy in name of B. Scorpio endorsed to bank

Existing Aggregate Facilities:

(Lcy 000s) Approved

ORION IS OBLIGED TO KEEP ITS CONTRACTS WITH THE PAP AND ATW VALID
AND IN FORCE.

ALL INSURABLE PHYSICAL ASSETS OF THE COMPANY ARE TO BE DULY
INSURED.

ALL ASSETS MORTGAGED, OR OTHERWISE GIVEN IN LIEN TO THE BANK,
MUST BE DULY INSURED WITH THE BANK NAMED AS BENEFICIARY.

THE COMPANY MUST PROVIDE THE BANK QUARTERLY FINANCIAL
STATEMENTS WITHIN 60 DAYS OF THE END OF EACH RESPECTIVE QUARTER.

THE COMPANY MUST PROVIDE THE BANK WITH ANNUAL FINANCIAL
STATEMENTS AUDITED BY AN EXTERNAL AUDITOR ACCEPTABLE TO THE
BANK WITHIN 90 DAYS OF FISCAL YEAR END.

THE COMPANY MUST MAINTAIN ALL OTHER FINANCIAL OBLIGATIONS UP TO
DATE.

MERGE ANY OTHER COMPANY OR ENTER INTO NEW LINES OF
BUSINESS.

SELL OTHERWISE DISPOSE OF ANY FIXED ASSETS IN EXCESS OF THE
AMOUNT OF ANNUAL DEPRECIATION.

CHANGE THE GENERAL MANAGER.

PAY ANY DIVIDENDS IN AMOUNTS GREATER THAN WHAT IS NEEDED
TO COMPLY WITH THE EXISTING SHARE PURCHASE AGREEMENTS -
WHICH CANNOT EXCEED - AMOUNTING ANY ONE YEAR.

A MINIMUM CURRENT RATIO OF 1.8 AS MEASURED AT THE END OF
EACH QUARTER.

A MAXIMUM LEVERAGE OF 1.5 AS MEASURED AT THE END OF EACH
QUARTER.


Any Questions ???
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