Performance Evaluation

Introduction

This portfolio work project will help you complete a thorough review of an organization’s financial performance as well as their level of risk for lending. Your recommendation will help leadership create a loan portfolio, and your executive summary will clearly and concisely communicate your review to others in the organization.

Scenario

You work for an organization that provides loans to businesses. You are working with a client who is requesting a loan that will require a review of financial and related performance documents. You have been asked to review the documents and summarize your findings in a loan recommendation for your management team.

You may apply this scenario to either Option 1 or Option 2, described in Requirements below.

Your Role

You are a loan manager for a lending organization, and your responsibilities include reviewing loan requests and providing recommendations in regard to whether the loan requests should be funded.

Requirements

Option 1:

Your client works for Ace Company. Assume Ace Company requested a $3 million 10-year loan to purchase production equipment and develop accompanying software.

The Ace Company Data document provided in the Resources contains financial statements for Ace Company.

Option 2:

Use a firm or scenario of your choosing.

Before choosing a company, read the assignment thoroughly to ensure:

The company fits the assignment requirements.

You have access to the financial statements and related performance documents needed to assess risk and make a loan recommendation. You will need information for this year and last year.

• You can distribute the financial statements and related performance documents without disclosing confidential company information.
• Contact your instructor with questions.
• Loan Recommendation

To arrive at your recommendation, analyze the financial performance of the requesting company and present it to your organization’s upper-management team. The management team will take your recommendation into consideration as they finalize loan requests.

Analyze the company’s performance and performance trends. Include the following in your analysis:

Analyze the trend for accounts receivable collections.

Identify the trend.

Explain the relevance of the trend.

1. Determine if the trend is improving or getting worse.

Compare the company’s average inventory turnover to the industry average inventory turnover rate. Note that the average industry turnover rate for Ace Company is 10 times per year.

1. Consider whether the company’s average inventory turnover is higher or lower than the industry average.
2. Explain whether a higher or lower average is better.
3. Determine whether the trend is improving or getting worse.
4. Evaluate the company’s short-term and long-term credit worthiness based on financial performance and trend (comparing this year to last year). Include in your evaluation:

Information about performance and trends.

1. Information about other relevant financial information you consider important to the decision.
2. Your recommendation regarding whether the bank should grant the loan based on the financial data.
3. Deliverable Format
4. The management team of your organization requests this information in the form of a 1–2 page executive summary along with a title page, references page, and appendix of supporting information. The executive summary must highlight the key findings from your review and will provide your recommendation and rationale. The appendix must include data used in your analysis for others to review. Assume that this document is the only communication in regard to your analysis and recommendation and that you will not be with the team to explain anything as it deliberates. In other words, the documentation you provide must be well organized and include information for the management team to clearly see your recommendation and rationale.

Related company report standards:

1. The executive summary is a professional document and should therefore follow the corresponding Academic and Professional Document Guidelines, including single-spaced paragraphs.
2. In addition to the executive summary, include:
3. A title page.

A references page.

Appendix with supporting materials. If you are using a firm or scenario of your choosing, ensure your instructor has sufficient information to understand how you reached your recommendation.

At least two APA-formatted references.

Evaluation

• By successfully completing this assignment, you will demonstrate your proficiency in the following course competencies through corresponding scoring guide criteria:
• Competency 1: Explain how accounting concepts and practices impact financial reporting.

Analyze the trend for the company’s accounts receivable collections.

• Compare the company’s average inventory turnover ratio to an industry average.
• Competency 2: Apply principles of accounting to assess financial performance.
• Evaluate the company’s short-term and long-term credit worthiness.
• Competency 4: Communicate financial information with multiple stakeholders.

Communicate accounting information clearly.

Your course instructor will use the scoring guide to review your recommendation as if they were a member of your organization’s management team. Review the scoring guide prior to developing and submitting your assignment.

Performance Evaluation Scoring Guide

• CRITERIANON-PERFORMANCEBASICPROFICIENTDISTINGUISHEDAnalyze the trend for the company’s accounts receivable collections.
  25%Does not analyze the trend for accounts receivable collections.Identifies the trend, but the analysis is incomplete or missing information.Analyzes the trend for the company’s accounts receivable collections.Analyzes the trend for accounts receivable collections and explains findings clearly and in sufficient detail that helps managers make a decision.Compare the company’s average inventory turnover ratio to an industry average.
  25%Does not compare the company’s average turnover ratio to the industry average.Compares the company’s average turnover ratio to the industry average, but the comparison is incomplete or missing information.Compares the company’s average inventory turnover ratio to an industry average.Compares the company’s average inventory turnover ratio to the industry average and explains the difference it makes in the company’s financials in detail and with clarity that will help bank managers make a loan decision.Evaluate the company’s short-term and long-term credit worthiness.
  30%Does not evaluate the company’s short- and long-term credit worthiness.States a belief about the company’s short- and long-term credit worthiness but does not provide an analysis.Evaluates the company’s short-term and long-term credit worthiness.Evaluates the company’s short- and long-term credit worthiness for this year compared to last year and explains and includes information that will help bank management make a loan decision.Communicate accounting information clearly.
  20%Does not communicate accounting information clearly.Communicates accounting information, but some information is not clear.Communicates accounting information clearly.Communicates accounting information clearly and engages the reader with the fluidity of expression. There are few if any errors of mechanics, grammar, or style.

Capital Budgeting

• The president of a large company was asked why the company was holding onto a large amount of cash, instead of investing the cash. The reply was, “Because we see a lack of available positive NPV projects.”
• For this discussion, prepare 3–4 paragraphs as if a new colleague you are mentoring who is not as knowledgeable as you about finance or accounting reads the above statement. Consider:
• Detailing for your colleague what the statement means and why it is important.

Providing an example of at least one project that may have a negative NPV but be worth doing. For example, perhaps the company is posting monitors all over its office to provide employees weather, traffic, and news.

• DISCUSSION PARTICIPATION SCORING GUIDE
• DISCUSSION PARTICIPATION GRADING RUBRICCriteriaNon-performanceBasicProficientDistinguishedApply relevant course concepts, theories, or materials correctly.
  25%Does not explain relevant course concepts, theories, or materials.Explains relevant course concepts, theories, or materials.Applies relevant course concepts, theories, or materials correctly.Analyzes course concepts, theories, or materials correctly, using examples or supporting evidence.Collaborate with fellow learners, relating the discussion to relevant course concepts.
  25%Does not collaborate with fellow learners.Collaborates with fellow learners without relating the discussion to the relevant course concepts.Collaborates with fellow learners, relating the discussion to relevant course concepts.Collaborates with fellow learners, relating the discussion to relevant course concepts and extending the dialogue.Apply relevant professional, personal, or other real-world experiences.
  25%Does not contribute professional, personal, or other real-world experiences.Contributes professional, personal, or other real-world experiences, but contributions lack relevance.Applies relevant professional, personal, or other real-world experiences.Applies relevant professional, personal, or other real-world experiences to extend the dialogue.Support position with applicable knowledge.
  25%Does not establish relevant position.Establishes relevant position.Supports position with applicable knowledge.Validates position with applicable knowledge.

Topic Resources

• To learn more about capital budgeting decisions, you may wish to read the following journal articles: 

Bennouna, K., Meredith, G. G., & Marchant, T. (2010). Improved capital budgeting decision making: Evidence from Canada. Management Decision, 48(2), 225–247.

Hornstein, A. S., & Zhao, M. (2011). Corporate capital budgeting decisions and information sharing. Journal of Economics and Management Strategy, 20(4), 1135–1170.

The following resources will be useful in preparing this discussion post:

Afterman, A. B. (2015). Non-GAAP performance measures: Virtue or vice? The CPA Journal, 85(10), 48–49.

Diffley, E. A, & Greenstein, A. (2016). Presenting non-GAAP financial measures in the face of increased scrutiny. Insights, 30(6), 3–9.

Marshall, D., McManus, W., & Viele, D. (2020). Accounting: What the numbers mean (12th ed.). New York, NY: McGraw-Hill. 

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