Final Answer

Executive Summary: Midi Capital Canada - Commercial Transportation Financing
Division
Introduction:
The case study is about a loan request from Simon Carriers Ltd. (SCL), a trucking company,
seeking $270,000 to purchase assets crucial for expanding its fleet in response to a 60%
increase in trucking volume resulting from a new supplier contract with an auto parts
manufacturer. Steve Brant, an assistant account manager at Midi Capital Canada's
Commercial Transportation Financing (CTF) Division, is evaluating the loan request and
presenting a report for approval. The decision-making process involves assessing SCL's
financial standing, adherence to lending criteria, and potential risks and benefits.
Based on the information provided, let's assess the loan request from Simon Carriers Ltd. to
purchase two new 2016 Freightliner transport trucks, four new 53-foot trailers, and four new
mobile satellite systems. We'll focus on whether SCL meets the criteria set forth by
Commercial Transportation Financing division of Midi Capital for loan approval.
Logical Critical Thinking and Arguments:
1. Industry Overview: The Southern Ontario trucking industry has a history of
profitability fluctuations. The case describes the challenges faced in the sector, the
impact of economic recessions and the opportunities for growth. SCL's success in
navigating these challenges is essential to evaluate.
2. Legislation and Risk Management: The legislation for enforcing safety standards in
the transportation industry is a crucial risk factor. The impounding of vehicles and
associated fines poses a financial risk that needs to be factored into the decision-
making process.
3. SCL's Financial History: SCL was founded in the late 1980s and has a history of
resilience, surviving economic downturns and expanding its operations. The exclusive
contract with an auto parts manufacturer in 2014 significantly increased its trucking
volume, requiring financial assistance from both Nippissing Credit and Midi Capital.
4. New Contract and Expansion Plans: The expiration of the existing contract and the
opportunity to bid for a new, more substantial contract raise questions about SCL's
strategic position. The expansion plan includes acquiring two new trucks, four trailers,
and mobile satellite systems to accommodate the increased trucking volume.
5. Financial Projections and Loan Request: SCL's projections for 2016 include
increased revenues, additional operating expenses, and a new loan. The key decision
factor is whether SCL will demonstrate a cash surplus on its projected balance sheet,
indicating its ability to make the required loan payments.
6. Credit Limit and Decision-Making Process: Brant, the assistant account manager,
faces the challenge of deciding whether to approve the loan, which exceeds his credit
limit. The "Find, Win, Keep" strategy of CTF emphasizes the importance of securing
new business while managing risk. Brant's report must align with CTF's lending
criteria and contribute to the division's profit targets.
Analysis of Financial Health of Simon Carriers Ltd.
1. Company Experience: SCL has been in business since the late 1980s, meeting the
requirement of being in operation for more than three years.
2. Profitability: The Return on Average Equity has been volatile, reaching exceptionally
high levels in 2015. This indicates potentially aggressive financial management or a
one-time boost in profitability. This would require further investigation into the
reasons behind this spike.
3. Stability: The debt to equity ratio has increased over the years, indicating higher
reliance on debt for financing. However, the interest coverage suggests improved
ability to meet interest obligations. Also the financial statements indicate a positive
cash flow from operating activities, suggesting the ability to cover interest payments.
4. Liquidity: exhibits strong liquidity ratios, with a current ratio above industry average.
The positive working capital implies the company can cover its short-term liabilities
comfortably.
5. Efficiency: SCL's efficiency in managing receivables and payables is impressive,
indicating effective working capital management
6. Growth: SCL has experienced substantial growth in sales and profits, contributing to
a positive trend in asset and equity growth.
7. Character of Business Owners and Economic Conditions: While not explicitly
stated, the experience of the Simon family in managing the business through
economic downturns demonstrates their commitment and ability to navigate
challenging times.
8. Additional Factors: The projected increase in revenue and the need for additional
assets to accommodate the new contract with the auto parts manufacturer are factors
in favor of approving the loan.
Conclusion:
Overall, SCL demonstrates robust financial health with strong liquidity, efficiency, and
notable growth. Their track record, ability to generate cash flow, and the potential for
increased revenue with the new contract support the approval of the loan request. However,
the spike in ROAE and the increasing debt to equity ratio warrant a closer examination of the
company's financial management strategies and potential risks associated with its financing
structure. Further analysis of the long-term liabilities and the reason behind the extraordinary
ROAE in 2015 is crucial for a comprehensive assessment of the company's financial health.
Based on the provided information, it seems that Simon Carriers Ltd. meets the criteria for
loan approval set by Midi Capital's Commercial Transportation Financing division.

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Executive Summary: Midi Capital Canada - Commercial Transportation Financing

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