| Course | GF530 Financial Statement Analysis |
|---|---|
| Unit | Unit 10 |
| Paper type | Credit appraisal report |
| Length | About 1,100 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF530 Unit 10
Approve $32 Million, Not $40: A Unit 10 Credit Appraisal Report on a Regional Food Processor
[Student Name]
Purdue University Global
GF530: Financial Statement Analysis
Unit 10 Credit Appraisal Report
[Instructor Name]
[Date]
The food processor, its owners, the bank and every figure are composite and illustrative, in millions of dollars; the articles and textbooks cited are real.
Decision Page
Recommendation: approve a term loan of 32.0 over seven years, not the 40.0 over five years requested.
Conditions: fixed charge coverage of at least 1.15 times, tested quarterly; lease-adjusted debt no more than 3.0 times EBITDA before rent; a first lien on the new line and existing plant equipment; and an equity contribution of 8.0 from the owners to cover the difference.
Key figures at the recommended size: fixed charge coverage of about 1.34 times and lease-adjusted debt of about 2.6 times adjusted EBITDA before rent.
The Borrower and the Request
The company makes frozen pierogi, dumplings and filled pasta sold to grocery chains in eight states. It is family owned, has banked with us for eleven years and has never missed a payment. It proposes a second production line that would add about 30 percent to capacity, financed entirely with a new term loan. Figures that follow are in millions.
Step 1: Adjusting Earnings
Reported EBITDA for the last fiscal year was 31.0. Two items do not reflect repeatable cash earnings.
An insurance recovery of 3.2. After a freezer failure two years ago, the company received a final insurance settlement, recorded in other operating income. It will not recur.
Capitalized repairs of 1.4. The company capitalized the cost of rebuilding two blast freezers. The work restored the equipment rather than extending its life, so it is better treated as an operating expense for credit purposes.
Adjusted EBITDA is therefore 31.0 less 3.2 less 1.4, or 26.4. Adding back rent of 2.4 on the leased warehouse gives adjusted EBITDA before rent of 28.8, used for measures that treat lease payments like debt service. Credit analysts adjust earnings this way before calculating any ratio, because lenders are repaid from recurring cash rather than reported profit (Fridson & Alvarez, 2022).
Step 2: Repayment Capacity
Fixed charge coverage compares the cash available for fixed obligations with those obligations. The numerator is adjusted EBITDA before rent of 28.8, less maintenance capital spending of 6.0 and cash taxes of 2.4, or 20.4. The denominator adds existing interest of 1.8, existing principal of 4.0, rent of 2.4 and the new loan's first-year interest and principal.
1. As requested, 40.0 over five years at 7.5 percent: new interest of 3.0 and principal of 8.0 bring fixed charges to about 19.2. Coverage is about 1.06 times.
2. 40.0 stretched to seven years: principal falls to about 5.7, fixed charges to about 16.9 and coverage to about 1.21 times.
3. 32.0 over seven years: new interest of 2.4 and principal of about 4.6 bring fixed charges to about 15.2. Coverage is about 1.34 times.
At 1.06 times, a fall of about 4 percent in adjusted EBITDA would leave the company unable to meet its fixed charges from operations. At 1.34 times, adjusted EBITDA can fall about 11 percent before coverage reaches the 1.15 covenant.
The request fails not because the company is weak but because the reported earnings it was sized on included 4.6 of income that will not recur, and once that is removed the full 40.0 on a five-year schedule would consume nearly every dollar the business generates.
Step 3: Lease-Adjusted Debt
Existing debt is 28.0, and the balance sheet carries lease liabilities of 14.9 for the warehouse. Adding the new loan:
1. At 40.0: total lease-adjusted debt of 82.9, or about 2.88 times adjusted EBITDA before rent.
2. At 32.0: total of 74.9, or about 2.60 times.
Both sit under the 3.0 limit, but the larger loan leaves little room if earnings dip.
Step 4: What the Expansion Adds
The new line is expected to add about 5.0 of EBITDA from its second year, once two grocery chains begin stocking the expanded range. At the recommended size, coverage would then rise to about 1.67 times. That improvement is real but uncertain; the committee should treat it as headroom that builds over time, not as a basis for a larger loan today.
Step 5: Downside
If adjusted EBITDA fell 10 percent in the first year, because a grocery chain delisted products or ingredient costs spiked, coverage at the recommended size would fall to about 1.17 times, just above the covenant. At the requested size it would fall to about 0.92 times, meaning the company would need to draw on cash or its credit line to pay the bank.
Why Covenants, and Why These
Covenants give the bank an early warning and a seat at the table before a default. Dichev and Skinner's large sample of private loans found an unusually large cluster of borrowers sitting barely inside their covenant limits, which is why thresholds should be set on adjusted figures and tested frequently (Dichev & Skinner, 2002). Defining EBITDA in the loan agreement to exclude insurance recoveries and to expense restoration repairs prevents the two adjustments above from reappearing.
Industry Considerations
Frozen prepared foods have grown steadily as grocery chains expand freezer space, but the business carries two risks a lender should weigh. Ingredient costs, especially flour, potatoes and cheese, can move sharply within a season, and contracts with grocery chains usually fix prices for six to twelve months, so cost spikes hit margins before they can be passed on. And a small number of chains buy most of the output: the company's three largest customers account for about 55 percent of sales. Losing one would cut adjusted EBITDA by far more than the 10 percent downside tested above. The recommended structure does not remove that risk, but its lower debt service leaves the company time to replace a lost customer before the bank's position is threatened.
Collateral and Character
The new line and existing plant equipment, appraised at about 41.0 on an orderly liquidation basis, would secure the loan. The family's eleven-year record with the bank, and its willingness to contribute 8.0 of equity, support the credit. Collateral reduces the loss if a default occurs but does not replace repayment capacity (Penman, 2013), which is why the recommendation turns on coverage first.
Conclusion
Approve 32.0 over seven years with the conditions on the decision page. The smaller loan, matched to adjusted earnings and supported by an owner contribution, gives the company the line it needs and the bank a cushion it can rely on.
References
Dichev, I. D., & Skinner, D. J. (2002). Large-sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091-1123. https://doi.org/10.1111/1475-679X.00083
Fridson, M. S., & Alvarez, F. (2022). Financial statement analysis: A practitioner's guide (5th ed.). Wiley.
Penman, S. H. (2013). Financial statement analysis and security valuation (5th ed.). McGraw-Hill.
GF530 Unit 10 instructions, in plain terms
Unit 10 of GF530 asks for a credit appraisal written for a lending committee. Put the decision, conditions and key figures on the first page. Strip from reported EBITDA anything that will not happen again or that belongs in expense, and give the reason for each change. Test repayment capacity with fixed charge coverage at several loan structures, showing the numerator and denominator. Measure debt including lease obligations against earnings before rent. Consider what the financed project adds, test a downside, and weigh industry risks such as customer concentration and input costs. Explain the covenants you recommend and why they are set where they are. Assess collateral as a secondary source of repayment. End with the decision restated. Cite credit analysis texts and research on covenants in APA 7.
Inside the GF530 Unit 10 example
A decision page with the approved amount, four conditions and two key figures opens the sample. A section on the borrower describes its products and its history with the bank. Step 1 removes the insurance recovery and capitalized repairs and adds back rent, citing Fridson and Alvarez on recurring cash. Step 2 computes coverage at three structures, and the highlighted sentence links the failure of the request to the income that will not recur. Step 3 measures debt including lease liabilities at two loan sizes. Step 4 shows coverage rising to about 1.67 once the new line earns, and Step 5 tests a 10 percent fall in earnings. A covenant section cites Dichev and Skinner, an industry section weighs customer concentration, and collateral and conclusion sections close the report.
Reading the GF530 Unit 10 grading rubric
GF530 credit appraisals are graded on adjusted earnings, repayment capacity and the soundness of the decision. Graders verify each earnings adjustment and expect a reason for it. Fixed charge coverage must be computed correctly, with its parts shown, at more than one structure, so the committee can see how size and term change the answer. Debt measures that include leases earn credit for completeness. A downside test and industry risks show the student considered what could go wrong. Covenants should be specific and tied to the analysis. Instructors in the MS in Finance program value a decision page a committee could act on alone. Dichev and Skinner, the Fridson and Alvarez text and Penman, cited in APA 7, complete this final unit's marks.
GF530 Unit 10 help from the desk
Many GF530 Unit 10 reports compute ratios on reported EBITDA, carrying one-time income into the lender's capacity estimate. Others use interest coverage alone and ignore scheduled principal, which is often the larger burden for an amortizing loan. Rent is left out of both coverage and debt measures. Only the requested structure is tested, so the committee has no alternative. Covenants are copied from a template rather than set from the analysis. Collateral is presented as a reason to lend rather than as a backstop. For any borrower your case describes, follow the same order: adjust earnings, test several structures, measure debt with leases, stress the result, weigh the industry and set conditions.
Get a GF530 Unit 10 example written to your instructions
Send the borrower's statements and the loan request from your GF530 Unit 10 case, with the prompt and rubric. What returns is a term-sheet verdict on page one, earnings adjusted before any ratio, coverage tested at more than one loan size and covenants set with headroom. The first custom sample is free, usually within 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF530 Unit 10 questions, answered
Should the verdict be approve or decline?
Whichever the adjusted numbers support, and often something in between. Committees rarely see a simple yes; they approve a different amount, a longer term or tighter conditions. The sample approves a smaller loan because coverage at the requested size is too thin. A decline would be equally acceptable if it stated the shortfall and what would change the answer.
What is fixed charge coverage and why use it?
It divides cash available after maintenance capital spending and taxes by everything the borrower must pay: interest, rent and scheduled principal. Interest coverage alone ignores principal, which for an amortizing term loan is often the larger obligation. The sample uses fixed charge coverage as the deciding measure because it answers whether the borrower can meet its payments, not just its interest.
How is this different from an equity analysis?
A lender's upside is capped at repayment with interest, so the report focuses on downside: whether cash flow covers obligations in a bad year and what collateral remains if it does not. An equity analyst weighs growth and valuation. The sample says nothing about the firm's value to shareholders, and its adjustments serve one question, whether the loan will be repaid.
Where can I find a free GF530 Unit 10 sample paper?
This page carries a complete GF530 Unit 10 credit appraisal report on a frozen-food processor, with adjusted EBITDA, coverage at three loan structures, covenants and APA 7 references.
Why not stretch the $40 million loan to seven years?
Stretching lifts coverage only to about 1.21 times and lease-adjusted debt to about 2.88 times, leaving little room for a bad year. The smaller loan reaches about 1.34 times with the owners covering the difference.