Question

A A A E. V. A 2-A-EEEEE ti A Shape Fil- Sape Outline Shapes Arrange Quick Styles Shape Effects Drawing Find Replace Select- Dictate Edting Voice ont Paragraph Red Flags in Financial Statement Analysis • Earnings problems • Decreased cash flow • Too much debt Inability to collect receivables Buildup of inventories • Trends of sales, inventory and receivables Pears Notes e 818 p Edo o hp

we need to dicuss about points which mentioned over there. what are of problems of RBC and BMO with these points

there are two banks RBC and BMO. so what are earning problems of RBC and BMO and what can be solutions. Decrease cash flow of RBC and BMO and solutions. so, we have to discuss about RBC and BMO financial analysis acoording to given points

Answer 1

Earnings Problems

Problem: A banks earnings are its net income for a given quarter or fiscal year. Earnings Per Share(EPS) shows how much a bank earns for each share. A higher indicate a higher value for the stock compared to others in the market. Earning problems can cause disatisfaction among the shareholders who are the main stakeholders in a bank. If the earnings of the banks are not satisfactory company may loose its goodwill among shareholders hence loosing its presence in the market in the long run.

Solution: To mitigate this circumstance the banks should maintain a good net profit level after giving out the preference dividend. it should reduce its expenses to keep the figures in balance.

Decreased CashFlow

Problem: Decreased cashflow can be a threat to the banks going concern. To meet its day to day need it needs a well managed cashflow. If cashflow is not maintained properly banks cannot face unforseen circumstances like a fire or natural calamity etc. The banks may loose its suppliers if no cash is used to settle them on time likewise.

Solution: Always maintain a cashflow from your revenue to meet unforseen circumstances.

Too Much Debt

Problem: Too much debt may cause the banks to pay a high finance cost. hence making the banks expense to increase and as a result the profit and gradually the earnings of banks to decrease.

solution: determining a balance between the debt financing and raising moiney through sharholders fund can mitigate this problem too much debt and a debt free financing is all dangerous at the same time.

Inability to collect Recievables

Problem: Late or Inability to collect the receivables is a serious problem as it may increase the amount of bad or doubful debts which may cause cashflow issues to the company ultimately leading to going concern issues.

Solution: review creditworthiness of customers. Provide terms only to clients who have good credit and a solid payment record. Others should prepay until they have built a track record with your company.

Buildup of Inventories

Problem: Buildup of inventories may cause a huge loss as it may become outdated and becoming idle.

Solution: The amount of product you keep in stock depends on your volume, sales forecasts, available cash, and supplier capabilities. Monitor inventory levels carefully.

Trends of Sales, Inventory and Receivables

Problem: To maintain a good level oof revenue should consider the inventory and receivables trend to that of the sales. how much of inventory is sold and to whom does the sale is made is very important to know the cashflow position.

Solution: Analysis should be made to determine the level of inventory and creditworthiness of the customers to analyse the revenue trend. To keep a good record only inventory that could be sold is only expected to be produced in the first place and ensure it is only sold to creditworthy customers or those who can afford it.