Question

Which of the following is a factor that should have been included or discussed in Stampede’s credit application?

A. five years of forecasted financials instead of three years.

B. Comprehensive analysis of Stampede’s two main competitors.

C. Succession planning regarding the likely impending retirement of the CEO.

D. Risks of company management being run entirely by the same family.

Answer 1

If Stampede has applied for a credit with a financial institution then the financial institution need to access the company from financial stand point as well as business stand point.

In my opinion all the points mentioned below are important and needs to be discussed before granting a credit line.

A. Five years of forecasted financials instead of three years

This will provide a view on entire business cycle with all market ups and down or growth and recession scenario. All the companies do well when market is in uptrend and economy is growing the reason to examine a long period is if there is a slowdown in market in past years the performance of the company in slowdown can be measured which gives a fare idea of future business prospects.

B. Comprehensive analysis of Stampede’s two main competitors.   

This is essential as the economy is changing continuously and companies evolve and die based on the market scenario. If the competitors are working or continuously looking to acquire market share the chances of revenue loss is possible. If Stampede as a company has take effective measures to beat competition than the possibility to sustain revenue growth as envisaged in the projection is likely to happen.

C. Succession planning regarding the likely impending retirement of the CEO.

This may have an impact on the future growth of the company and hence may affect the revenue generation. We will have to look and the potential of proposed CEO and the market sentiments attached with the current and proposed CEO. Sometimes these may impact the projected growth

D. Risks of company management being run entirely by the same family.

If the family has done a good job in running the business effectively so far, then this is not a risk.