credit analysis - Universiti Utara Malaysia

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					                                                                                  Sem 2 2004/2005
                           FACULTY OF FINANCE AND BANKING
                              UNIVERSITI UTARA MALAYSIA

COURSE CODE                    :        WF 3023
COURSE                         :        CREDIT MANAGEMENT
PREREQUISITE                   :        WF 2013 FINANCIAL MANAGEMENT I or WF 2123
                                        CORPORATE FINANCE II


      This course discusses the principles and theory of credit management specifically
      business credit and consumer credit management. In the introductory part of the course,
      topics covered will include the overview of credit management, classification and function
      of credit, and components of a credit transaction. The credit management process will be
      discussed encompassing promotion of credit programs, gathering of credit information,
      credit investigation, analysis and monitoring of credit and debt collection including legal
      actions. In addition to legal proceedings, creditor’s protection and export credit will also be
      discussed. Emphasis will be given on the credit management practice in Malaysia which
      also integrates related current issues.


      Upon completion of the course, students should be able to:
      2.1 appreciate the concepts of credit and its roles in the economy.
      2.2 comprehend the underlying principles of business and consumer credit.
      2.3 describe the credit management process starting from the credit offering until the
          collection of debts.
      2.4 recognise the importance of a credit policy
      2.5 identify the remedies available at a creditors’ disposal in his effort for debt repayment


      3.1 Cole, Robert H. and Lon L. Mishler (1998) Consumer and Business Credit
          Management, 11 th ed., Singapore : McGraw- Hill International Edition.

      3.2 Wong, Richard Y.K. (1998). Cash: The Lifeblood of Business, Kuala Lumur: Leeds

      3.3 Business Credit published The National Association of Credit Management. USA

      3.4 Credit Management published by The Institute of Credit Management, UK
                                                                      Sem 2 2004/2005
      3.5 The Journal of Lending and Credit Risk Management published by Robert Morris
          Assoc., USA


      This course will be conducted using several approaches. Lectures will be further
      supported with two-way interactions between the instructor and students. Occasionally,
      external speakers, who are practitioners in credit management, will be invited to share
      their practical experience.

      Apart from lectures, students are required to work on assignments or projects, individually
      or in groups, using secondary data collected from library or primary data that entails the
      students to carry out field works. Reports from these projects are expected to be
      submitted at the end of the semester. If time permits, students may be asked to present
      their reports to the class

      Quizzes will be given from time to time to ensure continuous evaluation is in force. This
      will motivate students to be ready and consistent in their learning. Students will also be
      tested via a mid-semester examination and a comprehensive final examination at
      semester end.

      Finally, students are expected to keep abreast with the latest business and financial
      developments. Discussions, quizzes, tests and examinations will, more often than not, test
      student’s knowledge of these latest developments. Students who possess good grasps of
      current affairs in credit management will surely have the advantage over those who do not.


      Students are evaluated on their coursework and examinations. Coursework comprises
      activities related to the course that are carried out periodically or continuously throughout
      the semester such as mid-semester exam, quizzes, projects, assignments, class
      participation, etc. Final examination will be held at the end of the semester. The allocation
      of marks is as follows:

              Coursework               60%
              Final exam               40%
                                                                                 Sem 2 2004/2005

  NO                                                                                      HOURS

      1   INTRODUCTION TO CREDIT                                                              3
           Definition of credit
           The credit transaction process
           Components of a credit transaction
           Myths of the credit industry
           Cost of credit

      2   CLASSIFICATION AND ROLE OF CREDIT IN THE ECONOMY                                    3
             The role of credit in the economy
             Benefits and dangers of using credit
             Classification of credit
             Types of credit
               open account / charge account
               hire-purchase
               cash loans, etc.

      3   DECISION TO OFFER CREDIT                                                            3
           Purpose of giving credit
           Outside providers of credit program
           Factors affecting the decision to provide internal credit programs
           Function of a credit manager

      4   CREDIT POLICY AND TERMS OF CREDIT                                                   3
           Purpose and content of a credit policy
           Terms of credit
           Factors determining the terms of credit
           Analysing changes in credit term

      5   CREDIT MANAGEMENT PROCESS, PROMOTION AND CREDIT                                     3
           Credit management process
           Promotion of credit programs
           Sources of credit information
           Credit investigation
                                                          Sem 2 2004/2005

6    CREDIT ANALYSIS                                                   6
      Credit scoring
      Multiple discriminant analysis ~ the Z-score
      Financial statement analysis
      The 5C’s of credit

7    MONITORING OF ACCOUNTS RECEIVABLE                                 3
      Routine and problem accounts
      Causes of late payment
      Credit limit
      Aging of accounts receivable

8    COLLECTION METHODS AND PROCEDURES                                 6
      Goals of a good collection system
      Factors affecting a collection policy
      Stages in collection procedures:
         reminder
         follow-up action
         drastic action
      Techniques used in the various collection stages

9    TAKING LEGAL ACTION                                               6
      Factors to consider before taking legal actions
      The legal process
      Enforcement of judgment:
         judgment debtors summon
         writ of seizure and sale
         garnishment
         attachment of salary
         bankcruptcy proceeding
         winding-up proceeding

10   SECURITY FOR CREDITORS                                            3
      Collateral and types of collateral acceptable
      Guarantees and types of guarantee available
      Credit insurance

11   INTERNATIONAL TRADE CREDIT                                        3
      Credit problems of export trade
      Export terms of sale
      Sources of foreign credit information
      Export credit insurance
                                                                                Sem 2 2004/2005
CONTACT:                04-9286427 OR
ROOM NO:                FWB 2088


      The exam shall cover Chap one to five. There will be 30 True/False and 30 Multiple choice
      questions. The tentative date is on the 31st January 2005.


1) Article / Journal Review (10 Marks)
         Students will be assigned to a group of two members. Each group must submit an articles
         from Journal that represent issues as follows :

             Article                     Topic
             1         Management of Receivables
             2         Credit card
             3         Credit scoring
             4         Working capital management
             5         Cash management
             6         Credit policy
             7         Collateral
             8         Factoring
             9         Collections

       Selection of topic is given on first come first serve basis within the first 2 weeks of the
       semester. Not more than 3 groups can choose the same article topic. Article selected
       should fulfill the following criteria:

       a) Research have been done by the writer and publish in journal.
       b) Highlight the issues related to the syllabus of this course.
       c) Article from Refereed Journal is preferrable.

       Each group should write a review of the article not more than 10 pages. Submissions is
       due on 14th January 2005.

2) Short Assignments (5 Marks)

       Assignment will be given from time to time and students will be given 1 week to complete
       and submit the assignment.
                                                                                  Sem 2 2004/2005
Group project (maximum 4 members)

      Project Preview
      Your Company is currently developing the in-house credit programs. You as a
      senior financial manager have been appointed to lead the new set-up department
      namely Credit Department. Your responsibilities including setting up the credit
      policy, planning for promotion of credit programs, conducting credit analysis and
      manage and supervise the credit operation.
      The first task is to develop an effective system for credit applications. As a
      financial manager, you have to propose the credit application and analysis system
      that should be applied to your company The analysis should covered factors that
      are considered important and sources of information to be gathered in processing
      credit applications. Besides, delegation of duties to your staff department should
      also be taken into considerations.

      Format of Report
      Write a proposal on credit analysis functions that will be carried out by your
      department. The detailed of the proposal ia as what has been explained in the
      paragraph above.
      You also have to include analysis on sample company to support your proposals.
      Any two public listed company in Malaysia can be used as a sample company.
      Using the system that you propose, retrieve the financial data of that company and
      prepare the credit analysis report if you were to process the credit application
      from these two companies.

      The credit analysis report should contains:
      1) Relevant ratio analysis to measure short term liquidity, solvency and profitability
         of the company.
      2) Industry analysis and current trends.
      3) Performance evaluation and comparisons of the two companies.

      Using your analysis, recommend which one of the company are to be granted the
      credit facilities as an example in processing credit application by your department.

      Your proposal report should contains the following with an allocation of marks as

      1) Objective of your proposal                      5 marks
      2) Brief background of your company                10 marks
                                                                              Sem 2 2004/2005
        3) Credit Department Functions                  10 marks
        4) The proposed credit application and
           analysis system for your company             20 marks
        5) Credit analysis of 2 sample companies and your
           recommendation(Financial data based
           on the latest actual annual report)          40 marks
        6) Conclusion                                   7 marks
        7) Reference: Illustration and Appendix         3 marks
        # Style and Presentations                       5 marks
        TOTAL                                           100 marks
        Note: Annual Report of sample companies need to be attached.
        DUE DATE: 6 March 2005

      There will be at least 3 quizzes administered during lecture hours. Some of it will not be
      informed earlier therefore students are advise not to miss any of the class.


       Mid Term Exam                                                 20%
       Assignment (Article/Journal review and short assignments)     15%
       Project                                                       20%
       Quizzes                                                        5%

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