Assume you are a loan officer of a bank, and two companies require a loan of equal amount to be repaid over the next five years based on the following information: Birla Cement Ambuja Cement Current Ratio 2:1 3.5:l Debt-Equity Ratio 35% 45% If you could grant a loan to only one company, which company will it be and why?

English

Assume you are a loan officer of a bank, and two companies require a loan of equal amount to be repaid over the next five years based on the following information: Current Ratio - Birla Cement 2:1, - Accounts

Question

Assume you are a loan officer of a bank, and two companies require a loan of equal amount to be repaid over the next five years based on the following information:

	Birla Cement	Ambuja Cement
Current Ratio	2:1	3.5:l
Debt-Equity Ratio	35%	45%

If you could grant a loan to only one company, which company will it be and why?

Short Answer

Solution

A loan will be granted to Birla Cement. Its current ratio is 2:1, which is considered ideal and shows sufficient liquidity to meet short-term obligations. Its debt-equity ratio is 35%, lower than Ambuja Cement’s 45%, meaning Birla depends less on borrowed funds and carries lower financial risk.

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Chapter 15: Project Work - PROJECT WORK PROBLEMS [Page P-64]