Ethical Dilemma Ebenezer is CEO of a successful small business. One day he stops
ID: 2487721 • Letter: E
Question
Ethical Dilemma
Ebenezer is CEO of a successful small business. One day he stops by to see Tim Cratchit, the new branch manager at First National Bank. Ebenezer and his partner Marley would like to double the size of their loan with the bank from $500,000 to $1 million. Ebenezer explains, “Business is booming, sales and earnings are up each of the past three years, and we could certainly use the funds for further business expansion.” Tim Cratchit has a big heart, and Ebenezer has been a close friend of the family. He thinks to himself this loan decision will be easy, but he asks Ebenezer to email the past three years’ financial statements as required by bank policy.
In looking over the financial statements sent by Ebenezer, Tim becomes concerned. Sales and earnings have increased just as Ebenezer said. However, receivables, inventory, and accounts payable have grown at a much faster rate than sales. Further, he notices a steady decrease in operating cash flows over the past three years, with negative operating cash flows in each of the past two years.
Who are the stakeholders? What is the ethical dilemma? Do you think Tim should go ahead and approve the loan? What does the increase in receivables and inventory possible signal? Any other comments, suggestions?
Ethical Dilemma
Ebenezer is CEO of a successful small business. One day he stops by to see Tim Cratchit, the new branch manager at First National Bank. Ebenezer and his partner Marley would like to double the size of their loan with the bank from $500,000 to $1 million. Ebenezer explains, “Business is booming, sales and earnings are up each of the past three years, and we could certainly use the funds for further business expansion.” Tim Cratchit has a big heart, and Ebenezer has been a close friend of the family. He thinks to himself this loan decision will be easy, but he asks Ebenezer to email the past three years’ financial statements as required by bank policy.
In looking over the financial statements sent by Ebenezer, Tim becomes concerned. Sales and earnings have increased just as Ebenezer said. However, receivables, inventory, and accounts payable have grown at a much faster rate than sales. Further, he notices a steady decrease in operating cash flows over the past three years, with negative operating cash flows in each of the past two years.
Who are the stakeholders? What is the ethical dilemma? Do you think Tim should go ahead and approve the loan? What does the increase in receivables and inventory possible signal? Any other comments, suggestions?
Explanation / Answer
Stake holders:
Ebenezer - CEO
Tim Cratchit, the new branch manager
First National Bank
Key issues(ethical dilemma)
What was it in Tim’s analysis of the financial statements that caused him concern?
Should Tim should go ahead and approve the loan? or denied ?
Option 1: Approve the loan
The business has been successful in the past.
Ebenezer already has an established business relationship with the bank based on theinitial $500,000 loan.
Sales and earnings have increased each of the past three years.
Ebenezer is a good friend of the family.Option
2: Deny the loan
Doubling the loan size will increase the risk of default.
Receivables, inventory, and accounts payable have grown at a much faster rate than salesand operating cash flows have steadily decreased over the past three years.
The increase in receivables and inventory with a decrease in cash flows could indicate thecompany is fraudulently inflating receivables and/or inventory to overstate income.
The increase in accounts payable may indicate the company is having difficulty paying vendors on time and needs the loan to cover past due accounts payable.
The fact that Ebenezer is a good friend of the family should not affect the loan decision.
Suggestion:After observe all the above areas my suggession to Tim Cratchit is not to approve for Loan
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.