Commercial Bank Management Project Fall 2017-2018I. INTRODUCTION.docx

Commercial Bank Management Project Fall 2017-2018
I. INTRODUCTION
Student Learning Outcome:
This is a practical group project to help students in:
(1) Analyzing the lending policies applied in commercial
banks.
(2) Team work
(3) Financial Ratio Analysis
(4) Due Date to submit project: Tuesday, Dec 24, 2017 @ 11:00
am: Hard and Soft Copy.
II. PROJECT CONTENT:
Section (1): Loan Application Project
Company (X) is asking for a SR 45 million line-of-credits for a
period of 18 months.
**This company is promising to repay the loan based on an
assumption of a strong base of liquid assets, inventory and sales
for the coming 3 years and an efficient management of all its
expenses and short-term (current liabilities) –due to an
increased demand on its products, strong pricing strategies,
increased market share and high level of accounts receivable
during the last 3 years which is and will reflect in increased
sales and revenues.
**Company (X) has an outstanding loan with another bank = SR
10 million since 5 years and it matures this current year (current
year is the last year of your analysis). The loan remaining
maturity is end of the current year (current year is the last year
of your analysis). At the end of the current year, the company

must pay back SR 250,000 of its long-term debt (annual interest
payments) and SR10 million (the principal amount).
**Company (X) is unhappy with its present banking
relationship.
Section (2): General Requirements & Guidelines:
1. Group of 4-5 students.
2. Choose a company that operates inside Saudi Arabia.
3. In this project, you will assume that you are a team of Bank
Loan Officers to whom this company (X) is applying its above
loan application to.
4. The company must provide you with a good background
regarding its historical background, its business segment, its
operations, its products and services, its market share and major
competitors in the Saudi Market (if any)
5. The company is required to submit to your Bank TWO major
financial statements: Balance Sheet Statements and Income
Statements of at least 3 consecutive years (if 5 years better).
6. Optional: The Company may also submit to the Bank Loan
Officer(s) the latest year Cash-Flow statement (if available).
(the latest year pertains to the last year of your analysis)
7. The Bank is required to analyze all the submitted financial
statements: Balance Sheet, Income statements and Cash Flow
(optional) statements to make a decision about the loan applying
the methodology, tools and techniques discussed in the course
chapters about business loans.
8. All the financial statements used in analysis of the project
must be enclosed in the submitted copy of the project as
complete original statements inclusive of the attached notes. It
will be enclosed in the appendix section of the project (hard
copy only).

9. It is not advisable (but you may use) to use consolidated
financial statements because it does not reflect the actual
financial status of your company as the consolidated financial
statements refer to the financial status of the mother holding
company.
10. Your financial analysis must show the detailed equations +
chosen numbers or accounts of all financial ratios used in the
project analysis. The equations and mathematical work could be
enclosed in the appendix section or as a footnote but not as a
major part of the project analysis or presented in Excel sheet.
Refer to chapter (17) in your Text Book and follow a similar
display of analysis of data tables in your project.
11. All financial ratios and tables presented in the project must
be accompanied with your analysis or comments. Any ratios or
numbers provided unexplained will lose grades.
12. The last section in your project must present a complete
summarized table of all financial ratios used in the analysis to
make the final decision( as explained to you in chapter 17 in
your course)
13. Your conclusion and recommendation sections must include
a clear statement about details of the decision taken by the
Bank. If loan is approved, draft details about the loan
contract/agreement + covenants/collateral must be
supplemented.
14. If the Loan is not approved, explanations need to be
provided as well.
15. Some companies submit consolidated financial statements of
their Holding companies. It is not advised to use consolidated
financial statements as these are not reflective of the company
that you have chosen. However, if you want to use consolidated
financial statements that are related to the company of your
choice, make sure that you are using consolidated financial
statements for all the years of your analysis.
16. The selected financial statements must be as detailed as

possible (not summarized) because this will help you to apply a
comprehensive financial ratio analysis to make up a sound
conclusion.
17. It is highly advised that the chosen financial statements are
expressed in English, however, Arabic financial statements can
also be used for your analysis provided that you are comfortable
using it. However the analysis part of these Arabic financial
statements must be written in English language.
18. Due date to submit the project is Dec 24, 2017. All projects
must be typed and includes the following sections:
** Cover page
** Page stating the name of the student who worked on the
different sections of the project
**Purpose of the project/paper
** Introduction about the company.
** Details about the loan application (section 1 above)
** Complete financial ratio analysis of the loan application of
the company.
** Final Decision
** Conclusion
**References (if any)
** Appendix (must include the complete financial statements
used in the analysis).
19. No two groups can choose the same company for analysis.

Approval of course instructor must be given to group members
on the name of the chosen company for analysis. Without
instructor approval, the project title and work will not be
accepted and you will lose grade on the course project.
20. You can view the rubric used to correct these projects as
posted on BB.
21. Soft and hard copy must be submitted of the project on due
date. Soft copy/hard copy will be submitted to Ms Hadeel
Gandil.
Final Project Commercial Bank Management II
FINC 3302
Group Members:
Instructor: Mrs. Dunia Mamlouk
Submitted on: Dec 24, 2017
fall 2017-2018
Parts done by students
Purpose of the project:
Introduction about the
Preparing the Excel:
Excel financial statements:
Historical Financial Statements of Saudi Kayan company:.
In depth ratio analysis:
Summary of the key financial ratios:
Final decision:
Conclusion:
Table of Contents
7Purpose of the project
About the company
7
The Loan Application
8
Balance sheet:
10

Income Statement:
11
1- Operating Efficiency
12
2- Marketability Ratios
12
Coverage Ratios
13
Liquidity Ratios
13
Profitability Ratios
14
Financial Leverage
15
Summary of the key Financial Ratios
16
Final Decision
17
Conclusion
19
References:
20
Purpose of the project
The purpose of the project is to apply commercial bank
management course in situation of real life. For this project, we
as loan officers are going to analyze a company request for a
business loan. The decision will take place according to
analyzing its income statement and balance sheet. As a result,
we will determine if the company is qualified enough to take the
loan. At the end, the loan officers will give recommendation
and suggestions to the company. About the company
Saudi Kayan is a Saudi Joint Stock Company registered in the
Kingdom of Saudi Arabia under Commercial Registration in 12
June 2007. Saudi Kayan has a capital of 15 Million Saudi Riyals
and it is an affiliate of Saudi Basic Industries Corporation

(SABIC). The Saudi Kayan petrochemical complex is one of the
largest in the world and is located in the Jubail Industrial City.
Saudi Kayan moved into commercial phase on 1 October 2011
and has commenced production of some specialized chemicals
produced for the first time in Saudi Arabia. These products
include Ethanolamines (MEA, DEA & TEA), Ethoxylates,
Phenol, Cumene and Polycarbonate which will provide wide
web of opportunities for the downstream industries within the
Kingdom. Besides the products mentioned above, Saudi Kayan
is also producing Ethylene, Propylene, Polyethylene,
Polypropylene, Ethylene Glycol, Natural Detergent Alcohol,
Bisphenol-A, Acetone and other products. The main competitors
of Saudi Kayan are Sahara Petrochemical Company and Yanbu
National Petrochemicals Company.The Loan Application
Saudi Kayan is asking for a SR 45 million line-of-credits for a
period of 18 months. This company is promising to repay the
loan based on an assumption of a strong base of liquid assets,
inventory and sales for the coming 3 years and an efficient
management of all its expenses and short-term (current
liabilities) –due to an increased demand on its products, strong
pricing strategies, increased market share and high level of
accounts receivable during the last 3 years which is and will
reflect in increased sales and revenues.
Saudi Kayan has an outstanding loan with another bank = SR 10
million since 5 years and it matures this current year (current
payments) and SR10 million (the principal amount). Saudi
Kayan is unhappy with its present banking relationship.
Historical Financial Statements of Saudi Kayan company (All
amount in Saudi Riyal thousands)
I WILL POST THE BALANCE SHEET AND THE INCOME
STATEMENT OF THE COMPANY AS PDF AND FROM

THEM YOU CAN ANALYSE THE NUMBER THE SAME WAY
AS WHAT IS WRITTEN UNDERNEATH 2013 and 2014
2015 and 2014
Balance sheet:
Looking to the most significant accounts in the balance sheet,
the loan officers going to roughly analyze the percentage among
those accounts.
· The percentage of cash and cash equivalent is increasing by
(3.48%) over the three years which is a positive indicator.
· Account receivables is decreasing by (2.08%) between 2013
and 2015.
· By looking at the Current assets there is an increase from 2013
(13.89%) to 2014 (16.27%), and a decrease from 2014 to 2015
(14.28%). Have an overall increase is a good indicator.
· The loan officer's notice that Saudi Kayan total non-current
assets (Fixed assets) is having slightly decrease by (2.38%)
from 2013 to 2014, they compensate this decrease by increase in
their current assets in 2014 by (2.38%), while there is an
increase in 2015 by (1.99%). Also, it is a good indicator.
· Moving on to the current liability, the percentage shows a
slightly decrease between 2013 (9.22%) to 2014 (8.53%), while
there is an increase in 2015 (10.06%) which is a bad indicator
for the loan officers.
· There is a slight decrease in the Total liabilities in 2014 by
(0.39%) while there is a slight increase by (0.72%) so, overall it
is approximately flat which means that Saudi Kayan is not
highly depending on liabilities to finance their assets and
operation.
· Net worth is slightly decreased by (0.33%) from 2013 to 2015

which is almost stable.
Income Statement:
Looking to the most significant accounts in the Income
Statement, the loan officers going to roughly analyze the
percentage among those accounts.
· Sales revenue is fluctuated. From 2013 to 2014 it slightly
increase while a sharp decrease from 2014 to 2015.This is a
negative indicator that shows decline in revenue and could give
the loan officers a bad impression of the company.
· There is highly increase in Cost of good sales between 2013
and 2015 by (8.66%) it is a negative indicator which means that
the company is not controlling their cost efficiently.
· Selling and administrative expenses shows a bad indicators as
it is increased from (3.54%) to (4.82%) within the three years.
· The loan officers start worrying about giving this amount of
loan to Saudi Kayan as their results in Net loss over the past
three years. There is a decrease by (2.97%) between 2013 and
2014, while there is vast increase in the losses when it reaches
2015 (15.2%). Which means that the company is facing a real
financial trouble during the last year.
1- In depth ratios analysis:
There are seven financial ratios analysis for financial
statements:
Business Customer’s Control over Expenses
These ratios measure the company's efficiency to control their
expenses, so the bank expect this ratio to decrease over the
three years, if those ratios were increasing, it shows a negative
indicator to the bank.
Expenses Ratios
Year 2015

Year 2014
Year 2013
Cost of goods sold /Net sales
102.62%
91.62%
93.96%
Selling and administrative expenses/ Net sales
4.82%
3.89%
3.54%
Interest expenses/ Net sales
10.33%
6.64%
7.30%
Zakat/Net sales
1.04%
0.66%
0.87%
( ONLY PARAPHRASE THIS PART )
The Cost of good sold/Net sales is increasing from (93.96%) to
(102.62%). In addition, the Selling and Administrative
Expenses/Net Sales ratio is rising from (3.54%) to (4.82%). An
interest expense/Net sale has been fluctuating, but increased in
2015 which shows that their interest expense (financial charge)
has increased in 2015 and this is shown on the income
statement. Lastly, Zakat/Net Sales is fluctuating but overall is
increasing as income before Zakat is fluctuating. As a result,
Saudi Kayan is inefficient in controlling their expenses as all
the ratios in this section are increasing.2- Operating Efficiency
These ratios are measured to know how managers operate
efficiency in utilizing their assets to generate sales and how
efficiently those sales converted to cash. The bank wants all of
these ratios to increase except for the average collection period
ratio.

Operating efficiency
Year 2015
Year 2014
Year 2013
COGS/ AVG inventory
4.87x
4.57x
4.47x
Net sales/ Total assets
0.19x
0.26x
0.23x
Net sales/ fixed assets
0.22x
0.31x
0.26x
Net sales/ account receivables
3.86x
4.26x
3.23x
AVG collection period= account receivables/ (annual sales/360)
93 days
84.5 days
111.3 days
(PLEASE !!! Rewrite the analysis because I have changed the
number but the same way that is written underneath)
Cost of goods/Average inventory is slightly increasing by 0.4 in
the three years which is a positive indicator of the company's
management in turning their inventory into actual sales. In
addition, the average collection period is decreasing overall
from 111.3 days to 93 days as the number of days to collect
receivables reduced which means that the management are

efficient in collecting their receivables. Moreover, Net sales/Net
fixed assets and the Net sales/Total assets are approximately
flat as total fixed assets and total assets as somehow stable.
However, Net sales/ Accounts and notes receivables are
increasing. The bank noticed that the ratios are positive in this
area.
These ratios indicate the profitability of the company.
Marketability means the market share of the company. An
increase in this ratio means that the company’s shares in the
market are doing well. Thus the bank wants these ratios to
increase.
marketability of product
year 2015
year 2014
year 2013
GPM
-2.62%
8.38%
6%
NPM
-15.58%
-0.38%
-3.35%
Gross profit margin is decreasing by 8.66% and Net profit
margin is decreasing by 12.23% in the three years, which means
that the company’s profitability facing a huge reduction,
especially in 2015 there is a massive loss. This means that

products of the company is not selling well which is going to
affect their market shares, hence the company is facing some
difficulties in their shares price which explained why this area
is not efficient.
4- Coverage Ratios
Refers to the ability of the company’s earning to cover their
expense. These ratios should be one or above to show that the
company is fulfilling their obligations.
Coverage ratio Year 2015Year 2014Year 2013
Interest coverage= income before zakat tax / interest payment
1.40
0.04
0.33
Coverage of interest principle payment= income before zakat
tax / (interest payment + principle amount / 1-zakat rate)
1.40
0.041
0.33
These ratios are weak in the past three years; even the positives
ratios are below one, which means that they are not covering
their expenses and their financial charges. This is because they
have a negative income among the three years. As this area is
not in a strong position, the loan officers would suggest to
Saudi Kayan to use less debt but more owner’s equity to finance
itself by issuing more stocks, and find ways to increase its
income.
5- Liquidity Ratios
These ratios reflect the company's ability to raise cash to pay
off its short-terms debts obligations. The bank officers want
these ratios to increase reasonably to avoid opportunity cost.
Liquidity indicator

Year 13
Year 14
Year 15
Current asset / current liability
1.5x
1.91x
1.42x
ACID test ratio= current asset-inventory/ current liability
0.99x
1.30x
1.02x
Net liquidity asset= current asset-inventory- current liability
-$29,295
$1,166,565
$98,917
Net work capital= current asset- current liability
$2,146,465
$3,498,905
$1778695
The current ratio and the Acid test ratio are facing instability
with a decrease in 2015. The current liability decreased from
2013 to 2014 by SR 373,909, while the current asset increased
by SR 578,531, which led to the raise in the ratios. On the other
hand, the drop in the ratios goes to the increase in the current
liability by SR 386,839, and the decrease in the current assets
by SR 1,333,371 from 2014 to 2015. Net working capital has
fall in 2015, however, their current liability are covering their
current assets since they got a positive numbers. Moving to the
Net liquid assets, it shows a huge increase generally. The
company in a good situation among these ratios as their current
assets is able to cover their current liability, although the loan
officers are worried about the company as their ratios are
declining which add additional risk to their liquidity position.
6- Profitability Ratios

These ratios show the company’s ability to generate net income
after all their expenses and other relevant costs incurred. The
loan officers and the company itself want these ratios to
increase as they measure the company's profitability, which is
the main purpose of any company, otherwise there is no hope
for the company.
Profitability ratio
Year 13
Year 14
Year 15
Before zakaa net income/ total asset
-0.56%
0.07%
-2.75%
Before zakat net income/ net worth
-1.82%
0.23%
-9.06%
Before zakaa net income/ total sales
-2.48%
0.28%
-14.54%
ROA= After zakaa net income / total asset
-0.75%
-0.10%
-2.95%
ROE= after zakaa net income/ net worth
-2.46%
-0.32%
-9.71%
ROS= After zakaa net income/ total sales
-3.35%
-0.38%
-15.58%

Since the company got a negative income among the three
years, all of the profitability ratios are declining. In addition,
the total assets, net worth, and the total sales are not generating
earnings. As a consequence, this area is extremely miserably.
So, the loan officers suggest that the loan could be granted by
sufficient collateral; however, it is considered a weak substitute
for earnings and cash flow in repaying loan.7- Financial
Leverage
These ratios show how much the company is using debt to
finance their capital. The more debt financing a company uses,
the higher its financial leverage. A high degree of financial
leverage means high interest payments, which negatively affect
the company's earnings per share. So, the loan officers want
these ratios to decrease.
Financial leverage
Year 13
Year 14
Year 15
Leverage ratio =total liability/ total asset
69.5%
68.93%
69.65%
Total liability/ net worth
2.26
2.22x
2.30x
Capitalization ratio= long term debt/ long term and liability and
net worth
65.64%
65.24%
65.42%

Debt to sale ratio= total liability/ net sales
307.58%
267.88%
368.55%
The leverage ratio is approximately flat with a slight increase in
2015 with almost 0.70 Halala of every 1 Riyal in asset financed
through debt. This indicates that the company's strategy towards
its debt to equity ratio has not heavily changed in the past 3
years, which tell us that the company’s preference is to finance
its assets through debt rather than equity. The capitalization
ratio describes the company’s capital structure or its method of
supporting its operations and growth. A common theme in the
financial leverage ratios is the company’s preference of debt,
which is not a good sign of financial fitness.
Write a summary when you are done here is a summary of the
old so relate it with the analysis
The loan officer's noticed that, there is one out of seven areas is
good which is operating efficiency as Saudi Kayan managers are
operating efficiency in utilizing their assets to generate sales
and use those sales to be convert it to cash. Moreover, there is
another area out of the seven with an acceptable results which is
liquidity ratios; which shows that Saudi Kayan is in a good
situation, as their current assets are able to cover their current
liability, although the loan officers are worried about the
company as their ratios are declining which add an additional
risk to their liquidity position. On the other hand, the remaining
of the ratios are inefficient.
The bank have realized that Saudi Kayan most ratios has a huge
declined especially in 2015 which could be explained by the
economy of Saudi Arabia as it’s currently undergoing a mild
recession due to the drastic drop in oil prices. The effect of low
oil prices has affected the market as whole and various
industries have declined as a result, other factors have
negatively affected the economic status of the country.Final
Decision ( relate it to the analysis that you wrote )
The bank loan officers have decided to give the loan to Saudi

Kayan, however, there will be many provisions and conditions.
1) The loan officers are going to lengthen the line of credit to
be 10 million SAR for six months. If all payments on this credit
are efficiently made and there is no worsen in the Saudi
Kayan’s financial position, therefore, so they can renew the
credit line on semiannually basis.
2) All their fixed assets in addition to 80% of their account
receivables and 50% of their inventories will secure any
drawings against the loan. Also, the loan officers reduced the
loan amount because they want Saudi Kayan to depend more on
the equity side than taking more debts.
3) Interest payments will be assessed monthly.
4) Saudi Kayan have to keep deposit with the bank equal to 30%
of the loan amount that is drawn and 7% of any unused portion
of the loan.
5) The loan officers require monthly reports of Saudi Kayan’s
sales, expenses, net income, fixed assets, account receivables,
inventory level. Besides, the loan officers require quarterly
audited financial statements.
6) If Saudi Kayan wish to go into merger agreement/ joint
venture for any reason, the company approach any other bank
for additional loan or any further adjustment could affect the
repayment of the loan, sales of assets and liquidation, or any
changes occur in the management team of Saudi Kayan
company, the bank must give its approval in advance.
7) The company must maintain at least their level of the current
operating efficiency in addition to reasonably increase in their
liquidity ratios and decrease the financial leverage ratios.
8) Any significant changes in the Saudi Kayan’s financial

position must be reported to the bank directly.
9) Any failure to comply with these covenants or failure to
make payments on time will cause the loan to be immediately
due and terminated.
Conclusion (the conclusion may change so relate them with the
analysis)
The Petrochemical industry is one the most complex sectors in
the world where it is quite difficult to enter the market and be
well positioned. Despite its relatively recent inception, Saudi
Kayan was able to perfectly position itself in the market thanks
to its part ownership by SABIC, which is the fourth largest
chemical producer in the world. SABIC, which is 70% owned by
the government of Saudi Arabia, is a large contributor to the
Saudi GDP and plays a great role in the development of the new
oil-free era. The Saudi government’s vision of the oil-free
future entails heavily investing in non-oil industries including
Petrochemicals. Saudi Kayan’s position in the market, which is
driven by its relationship with SABIC and other governmental
agencies such as the Ministry of Petroleum and Mineral
Resources, will allow the company to flourish and expand in
upcoming years and exploit any forthcoming opportunities. This
positive outlook for the company offsets its mediocre
performance and provides comfort over the company’s ability to
solvency. By granting the company the loan the bank is able to
develop a business relationship with the company, one that will
entail many other arrangements and further business between
the two entities. The bank can also be a part of the new
movement and development occurring that industry through
Kayan by gaining the company as a customer. The company’s
performance and ratios will dictate the interest charges to be
paid on the loan in order to mitigate the risks of default. For
those reasons and more, the loan officers see that granting the
loan to Saudi Kayan is the optimal decision as one of the bank
features is to “never say no to any customer”.
References:

http://www.tadawul.com.sa/
http://www.saudikayan.com.sa/en/
Commercial Bank Management Project Fall 2017-2018
I. INTRODUCTION
Student Learning Outcome:
This is a practical group project to help students in:
(1) Analyzing the lending policies applied in commercial
banks.
(2) Team work
(3) Financial Ratio Analysis
(4) Due Date to submit project: Tuesday, Dec 24, 2017 @ 11:00
am: Hard and Soft Copy.
II. PROJECT CONTENT:
Section (1): Loan Application Project
Company (X) is asking for a SR 45 million line-of-credits for a
period of 18 months.
**This company is promising to repay the loan based on an
assumption of a strong base of liquid assets, inventory and sales
for the coming 3 years and an efficient management of all its
expenses and short-term (current liabilities) –due to an
increased demand on its products, strong pricing strategies,
increased market share and high level of accounts receivable
during the last 3 years which is and will reflect in increased
sales and revenues.
**Company (X) has an outstanding loan with another bank = SR
10 million since 5 years and it matures this current year (current

payments) and SR10 million (the principal amount).
**Company (X) is unhappy with its present banking
relationship.
Section (2): General Requirements & Guidelines:
1. Group of 4-5 students.
2. Choose a company that operates inside Saudi Arabia.
3. In this project, you will assume that you are a team of Bank
Loan Officers to whom this company (X) is applying its above
loan application to.
4. The company must provide you with a good background
regarding its historical background, its business segment, its
operations, its products and services, its market share and major
competitors in the Saudi Market (if any)
5. The company is required to submit to your Bank TWO major
financial statements: Balance Sheet Statements and Income
Statements of at least 3 consecutive years (if 5 years better).
6. Optional: The Company may also submit to the Bank Loan
Officer(s) the latest year Cash-Flow statement (if available).
(the latest year pertains to the last year of your analysis)
7. The Bank is required to analyze all the submitted financial
statements: Balance Sheet, Income statements and Cash Flow
(optional) statements to make a decision about the loan applying
the methodology, tools and techniques discussed in the course
chapters about business loans.
8. All the financial statements used in analysis of the project
must be enclosed in the submitted copy of the project as
complete original statements inclusive of the attached notes. It

will be enclosed in the appendix section of the project (hard
copy only).
9. It is not advisable (but you may use) to use consolidated
financial statements because it does not reflect the actual
financial status of your company as the consolidated financial
statements refer to the financial status of the mother holding
company.
10. Your financial analysis must show the detailed equations +
chosen numbers or accounts of all financial ratios used in the
project analysis. The equations and mathematical work could be
enclosed in the appendix section or as a footnote but not as a
major part of the project analysis or presented in Excel sheet.
Refer to chapter (17) in your Text Book and follow a similar
display of analysis of data tables in your project.
11. All financial ratios and tables presented in the project must
be accompanied with your analysis or comments. Any ratios or
numbers provided unexplained will lose grades.
12. The last section in your project must present a complete
summarized table of all financial ratios used in the analysis to
make the final decision( as explained to you in chapter 17 in
your course)
13. Your conclusion and recommendation sections must include
a clear statement about details of the decision taken by the
Bank. If loan is approved, draft details about the loan
contract/agreement + covenants/collateral must be
supplemented.
14. If the Loan is not approved, explanations need to be
provided as well.
15. Some companies submit consolidated financial statements of
their Holding companies. It is not advised to use consolidated
financial statements as these are not reflective of the company
that you have chosen. However, if you want to use consolidated
financial statements that are related to the company of your
choice, make sure that you are using consolidated financial

statements for all the years of your analysis.
16. The selected financial statements must be as detailed as
possible (not summarized) because this will help you to apply a
comprehensive financial ratio analysis to make up a sound
conclusion.
17. It is highly advised that the chosen financial statements are
expressed in English, however, Arabic financial statements can
also be used for your analysis provided that you are comfortable
using it. However the analysis part of these Arabic financial
statements must be written in English language.
18. Due date to submit the project is Dec 24, 2017. All projects
must be typed and includes the following sections:
** Cover page
** Page stating the name of the student who worked on the
different sections of the project
**Purpose of the project/paper
** Introduction about the company.
** Details about the loan application (section 1 above)
** Complete financial ratio analysis of the loan application of
the company.
** Final Decision
** Conclusion
**References (if any)
** Appendix (must include the complete financial statements
used in the analysis).

19. No two groups can choose the same company for analysis.
Approval of course instructor must be given to group members
on the name of the chosen company for analysis. Without
instructor approval, the project title and work will not be
accepted and you will lose grade on the course project.
20. You can view the rubric used to correct these projects as
posted on BB.
21. Soft and hard copy must be submitted of the project on due
date. Soft copy/hard copy will be submitted to Ms Hadeel
Gandil.
Final Project Commercial Bank Management II
FINC 3302
Group Members:
Instructor: Mrs. Dunia Mamlouk
Submitted on: Dec 24, 2017
fall 2017-2018
Parts done by students
Purpose of the project:
Introduction about the
Preparing the Excel:
Excel financial statements:
Historical Financial Statements of Saudi Kayan company:.
In depth ratio analysis:
Summary of the key financial ratios:
Final decision:
Conclusion:
Table of Contents
7Purpose of the project
About the company
7
The Loan Application
8

Balance sheet:
10
Income Statement:
11
1- Operating Efficiency
12
12
Coverage Ratios
13
Liquidity Ratios
13
Profitability Ratios
14
Financial Leverage
15
Summary of the key Financial Ratios
16
Final Decision
17
Conclusion
19
References:
20
Purpose of the project
The purpose of the project is to apply commercial bank
management course in situation of real life. For this project, we
as loan officers are going to analyze a company request for a
business loan. The decision will take place according to
analyzing its income statement and balance sheet. As a result,
we will determine if the company is qualified enough to take the
loan. At the end, the loan officers will give recommendation
and suggestions to the company. About the company
Saudi Kayan is a Saudi Joint Stock Company registered in the
Kingdom of Saudi Arabia under Commercial Registration in 12

June 2007. Saudi Kayan has a capital of 15 Million Saudi Riyals
and it is an affiliate of Saudi Basic Industries Corporation
(SABIC). The Saudi Kayan petrochemical complex is one of the
largest in the world and is located in the Jubail Industrial City.
Saudi Kayan moved into commercial phase on 1 October 2011
and has commenced production of some specialized chemicals
produced for the first time in Saudi Arabia. These products
include Ethanolamines (MEA, DEA & TEA), Ethoxylates,
Phenol, Cumene and Polycarbonate which will provide wide
web of opportunities for the downstream industries within the
Kingdom. Besides the products mentioned above, Saudi Kayan
is also producing Ethylene, Propylene, Polyethylene,
Polypropylene, Ethylene Glycol, Natural Detergent Alcohol,
Bisphenol-A, Acetone and other products. The main competitors
of Saudi Kayan are Sahara Petrochemical Company and Yanbu
National Petrochemicals Company.The Loan Application
Saudi Kayan is asking for a SR 45 million line-of-credits for a
period of 18 months. This company is promising to repay the
loan based on an assumption of a strong base of liquid assets,
inventory and sales for the coming 3 years and an efficient
management of all its expenses and short-term (current
liabilities) –due to an increased demand on its products, strong
pricing strategies, increased market share and high level of
accounts receivable during the last 3 years which is and will
reflect in increased sales and revenues.
Saudi Kayan has an outstanding loan with another bank = SR 10
million since 5 years and it matures this current year (current
payments) and SR10 million (the principal amount). Saudi
Kayan is unhappy with its present banking relationship.
Historical Financial Statements of Saudi Kayan company (All
amount in Saudi Riyal thousands)

I WILL POST THE BALANCE SHEET AND THE INCOME
STATEMENT OF THE COMPANY AS PDF AND FROM
THEM YOU CAN ANALYSE THE NUMBER THE SAME WAY
AS WHAT IS WRITTEN UNDERNEATH 2013 and 2014
2015 and 2014
Balance sheet:
Looking to the most significant accounts in the balance sheet,
the loan officers going to roughly analyze the percentage among
those accounts.
· The percentage of cash and cash equivalent is increasing by
(3.48%) over the three years which is a positive indicator.
· Account receivables is decreasing by (2.08%) between 2013
and 2015.
· By looking at the Current assets there is an increase from 2013
(13.89%) to 2014 (16.27%), and a decrease from 2014 to 2015
(14.28%). Have an overall increase is a good indicator.
· The loan officer's notice that Saudi Kayan total non-current
assets (Fixed assets) is having slightly decrease by (2.38%)
from 2013 to 2014, they compensate this decrease by increase in
their current assets in 2014 by (2.38%), while there is an
increase in 2015 by (1.99%). Also, it is a good indicator.
· Moving on to the current liability, the percentage shows a
slightly decrease between 2013 (9.22%) to 2014 (8.53%), while
there is an increase in 2015 (10.06%) which is a bad indicator
for the loan officers.
· There is a slight decrease in the Total liabilities in 2014 by
(0.39%) while there is a slight increase by (0.72%) so, overall it
is approximately flat which means that Saudi Kayan is not
highly depending on liabilities to finance their assets and
operation.

· Net worth is slightly decreased by (0.33%) from 2013 to 2015
which is almost stable.
Income Statement:
Looking to the most significant accounts in the Income
Statement, the loan officers going to roughly analyze the
percentage among those accounts.
· Sales revenue is fluctuated. From 2013 to 2014 it slightly
increase while a sharp decrease from 2014 to 2015.This is a
negative indicator that shows decline in revenue and could give
the loan officers a bad impression of the company.
· There is highly increase in Cost of good sales between 2013
and 2015 by (8.66%) it is a negative indicator which means that
the company is not controlling their cost efficiently.
· Selling and administrative expenses shows a bad indicators as
it is increased from (3.54%) to (4.82%) within the three years.
· The loan officers start worrying about giving this amount of
loan to Saudi Kayan as their results in Net loss over the past
three years. There is a decrease by (2.97%) between 2013 and
2014, while there is vast increase in the losses when it reaches
2015 (15.2%). Which means that the company is facing a real
financial trouble during the last year.
1- In depth ratios analysis:
There are seven financial ratios analysis for financial
statements:
Business Customer’s Control over Expenses
These ratios measure the company's efficiency to control their
expenses, so the bank expect this ratio to decrease over the
three years, if those ratios were increasing, it shows a negative
indicator to the bank.

Expenses Ratios
Year 2015
Year 2014
Year 2013
Cost of goods sold /Net sales
102.62%
91.62%
93.96%
Selling and administrative expenses/ Net sales
4.82%
3.89%
3.54%
Interest expenses/ Net sales
10.33%
6.64%
7.30%
Zakat/Net sales
1.04%
0.66%
0.87%
( ONLY PARAPHRASE THIS PART )
The Cost of good sold/Net sales is increasing from (93.96%) to
(102.62%). In addition, the Selling and Administrative
Expenses/Net Sales ratio is rising from (3.54%) to (4.82%). An
interest expense/Net sale has been fluctuating, but increased in
2015 which shows that their interest expense (financial charge)
has increased in 2015 and this is shown on the income
statement. Lastly, Zakat/Net Sales is fluctuating but overall is
increasing as income before Zakat is fluctuating. As a result,
Saudi Kayan is inefficient in controlling their expenses as all
the ratios in this section are increasing.2- Operating Efficiency
These ratios are measured to know how managers operate
efficiency in utilizing their assets to generate sales and how
efficiently those sales converted to cash. The bank wants all of
these ratios to increase except for the average collection period

ratio.
Operating efficiency
Year 2015
Year 2014
Year 2013
COGS/ AVG inventory
4.87x
4.57x
4.47x
Net sales/ Total assets
0.19x
0.26x
0.23x
Net sales/ fixed assets
0.22x
0.31x
0.26x
Net sales/ account receivables
3.86x
4.26x
3.23x
AVG collection period= account receivables/ (annual sales/360)
93 days
84.5 days
111.3 days
Cost of goods/Average inventory is slightly increasing by 0.4 in
the three years which is a positive indicator of the company's
management in turning their inventory into actual sales. In
addition, the average collection period is decreasing overall

from 111.3 days to 93 days as the number of days to collect
receivables reduced which means that the management are
efficient in collecting their receivables. Moreover, Net sales/Net
fixed assets and the Net sales/Total assets are approximately
flat as total fixed assets and total assets as somehow stable.
However, Net sales/ Accounts and notes receivables are
increasing. The bank noticed that the ratios are positive in this
area.
These ratios indicate the profitability of the company.
Marketability means the market share of the company. An
increase in this ratio means that the company’s shares in the
market are doing well. Thus the bank wants these ratios to
increase.
marketability of product
year 2015
year 2014
year 2013
GPM
-2.62%
8.38%
6%
NPM
-15.58%
-0.38%
-3.35%
Gross profit margin is decreasing by 8.66% and Net profit
margin is decreasing by 12.23% in the three years, which means

that the company’s profitability facing a huge reduction,
especially in 2015 there is a massive loss. This means that
products of the company is not selling well which is going to
affect their market shares, hence the company is facing some
difficulties in their shares price which explained why this area
is not efficient.
4- Coverage Ratios
Refers to the ability of the company’s earning to cover their
expense. These ratios should be one or above to show that the
company is fulfilling their obligations.
Coverage ratio Year 2015Year 2014Year 2013
Interest coverage= income before zakat tax / interest payment
1.40
0.04
0.33
Coverage of interest principle payment= income before zakat
tax / (interest payment + principle amount / 1-zakat rate)
1.40
0.041
0.33
These ratios are weak in the past three years; even the positives
ratios are below one, which means that they are not covering
their expenses and their financial charges. This is because they
have a negative income among the three years. As this area is
not in a strong position, the loan officers would suggest to
Saudi Kayan to use less debt but more owner’s equity to finance
itself by issuing more stocks, and find ways to increase its
income.
5- Liquidity Ratios
These ratios reflect the company's ability to raise cash to pay
off its short-terms debts obligations. The bank officers want
these ratios to increase reasonably to avoid opportunity cost.

Liquidity indicator
Year 13
Year 14
Year 15
Current asset / current liability
1.5x
1.91x
1.42x
ACID test ratio= current asset-inventory/ current liability
0.99x
1.30x
1.02x
Net liquidity asset= current asset-inventory- current liability
-$29,295
$1,166,565
$98,917
Net work capital= current asset- current liability
$2,146,465
$3,498,905
$1778695
The current ratio and the Acid test ratio are facing instability
with a decrease in 2015. The current liability decreased from
2013 to 2014 by SR 373,909, while the current asset increased
by SR 578,531, which led to the raise in the ratios. On the other
hand, the drop in the ratios goes to the increase in the current
liability by SR 386,839, and the decrease in the current assets
by SR 1,333,371 from 2014 to 2015. Net working capital has
fall in 2015, however, their current liability are covering their
current assets since they got a positive numbers. Moving to the
Net liquid assets, it shows a huge increase generally. The
company in a good situation among these ratios as their current
assets is able to cover their current liability, although the loan
officers are worried about the company as their ratios are

declining which add additional risk to their liquidity position.
6- Profitability Ratios
These ratios show the company’s ability to generate net income
after all their expenses and other relevant costs incurred. The
loan officers and the company itself want these ratios to
increase as they measure the company's profitability, which is
the main purpose of any company, otherwise there is no hope
for the company.
Profitability ratio
Year 13
Year 14
Year 15
Before zakaa net income/ total asset
-0.56%
0.07%
-2.75%
Before zakat net income/ net worth
-1.82%
0.23%
-9.06%
Before zakaa net income/ total sales
-2.48%
0.28%
-14.54%
ROA= After zakaa net income / total asset
-0.75%
-0.10%
-2.95%
ROE= after zakaa net income/ net worth
-2.46%
-0.32%
-9.71%
ROS= After zakaa net income/ total sales
-3.35%
-0.38%

-15.58%
Since the company got a negative income among the three
years, all of the profitability ratios are declining. In addition,
the total assets, net worth, and the total sales are not generating
earnings. As a consequence, this area is extremely miserably.
So, the loan officers suggest that the loan could be granted by
sufficient collateral; however, it is considered a weak substitute
for earnings and cash flow in repaying loan.7- Financial
Leverage
These ratios show how much the company is using debt to
finance their capital. The more debt financing a company uses,
the higher its financial leverage. A high degree of financial
leverage means high interest payments, which negatively affect
the company's earnings per share. So, the loan officers want
these ratios to decrease.
Financial leverage
Year 13
Year 14
Year 15
Leverage ratio =total liability/ total asset
69.5%
68.93%
69.65%
Total liability/ net worth
2.26
2.22x
2.30x
Capitalization ratio= long term debt/ long term and liability and
net worth
65.64%

65.24%
65.42%
Debt to sale ratio= total liability/ net sales
307.58%
267.88%
368.55%
The leverage ratio is approximately flat with a slight increase in
2015 with almost 0.70 Halala of every 1 Riyal in asset financed
through debt. This indicates that the company's strategy towards
its debt to equity ratio has not heavily changed in the past 3
years, which tell us that the company’s preference is to finance
its assets through debt rather than equity. The capitalization
ratio describes the company’s capital structure or its method of
supporting its operations and growth. A common theme in the
financial leverage ratios is the company’s preference of debt,
which is not a good sign of financial fitness.
Write a summary when you are done here is a summary of the
old so relate it with the analysis
The loan officer's noticed that, there is one out of seven areas is
good which is operating efficiency as Saudi Kayan managers are
operating efficiency in utilizing their assets to generate sales
and use those sales to be convert it to cash. Moreover, there is
another area out of the seven with an acceptable results which is
liquidity ratios; which shows that Saudi Kayan is in a good
situation, as their current assets are able to cover their current
liability, although the loan officers are worried about the
company as their ratios are declining which add an additional
risk to their liquidity position. On the other hand, the remaining
of the ratios are inefficient.
The bank have realized that Saudi Kayan most ratios has a huge
declined especially in 2015 which could be explained by the
economy of Saudi Arabia as it’s currently undergoing a mild
recession due to the drastic drop in oil prices. The effect of low
oil prices has affected the market as whole and various
industries have declined as a result, other factors have
negatively affected the economic status of the country.Final

Decision ( relate it to the analysis that you wrote )
The bank loan officers have decided to give the loan to Saudi
Kayan, however, there will be many provisions and conditions.
1) The loan officers are going to lengthen the line of credit to
be 10 million SAR for six months. If all payments on this credit
are efficiently made and there is no worsen in the Saudi
Kayan’s financial position, therefore, so they can renew the
credit line on semiannually basis.
2) All their fixed assets in addition to 80% of their account
receivables and 50% of their inventories will secure any
drawings against the loan. Also, the loan officers reduced the
loan amount because they want Saudi Kayan to depend more on
the equity side than taking more debts.
3) Interest payments will be assessed monthly.
4) Saudi Kayan have to keep deposit with the bank equal to 30%
of the loan amount that is drawn and 7% of any unused portion
of the loan.
5) The loan officers require monthly reports of Saudi Kayan’s
sales, expenses, net income, fixed assets, account receivables,
inventory level. Besides, the loan officers require quarterly
audited financial statements.
6) If Saudi Kayan wish to go into merger agreement/ joint
venture for any reason, the company approach any other bank
for additional loan or any further adjustment could affect the
repayment of the loan, sales of assets and liquidation, or any
changes occur in the management team of Saudi Kayan
company, the bank must give its approval in advance.
7) The company must maintain at least their level of the current
operating efficiency in addition to reasonably increase in their
liquidity ratios and decrease the financial leverage ratios.

8) Any significant changes in the Saudi Kayan’s financial
position must be reported to the bank directly.
9) Any failure to comply with these covenants or failure to
make payments on time will cause the loan to be immediately
due and terminated.
Conclusion (the conclusion may change so relate them with the
analysis)
The Petrochemical industry is one the most complex sectors in
the world where it is quite difficult to enter the market and be
well positioned. Despite its relatively recent inception, Saudi
Kayan was able to perfectly position itself in the market thanks
to its part ownership by SABIC, which is the fourth largest
chemical producer in the world. SABIC, which is 70% owned by
the government of Saudi Arabia, is a large contributor to the
Saudi GDP and plays a great role in the development of the new
oil-free era. The Saudi government’s vision of the oil-free
future entails heavily investing in non-oil industries including
Petrochemicals. Saudi Kayan’s position in the market, which is
driven by its relationship with SABIC and other governmental
agencies such as the Ministry of Petroleum and Mineral
Resources, will allow the company to flourish and expand in
upcoming years and exploit any forthcoming opportunities. This
positive outlook for the company offsets its mediocre
performance and provides comfort over the company’s ability to
solvency. By granting the company the loan the bank is able to
develop a business relationship with the company, one that will
entail many other arrangements and further business between
the two entities. The bank can also be a part of the new
movement and development occurring that industry through
Kayan by gaining the company as a customer. The company’s
performance and ratios will dictate the interest charges to be
paid on the loan in order to mitigate the risks of default. For
those reasons and more, the loan officers see that granting the
loan to Saudi Kayan is the optimal decision as one of the bank

features is to “never say no to any customer”.
References:
http://www.tadawul.com.sa/
http://www.saudikayan.com.sa/en/

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