Society Clothing Corporation

I. Introduction

Society Clothing Corporation is a manufacturer of quality shorts for ball players that was
established in 1991. Standard-sized shorts sold for Php80.00 per piece to wholesalers and
distributors, who distributes the product all over the city and in nearby provinces.

In 1996, CEO, Ms. Sheila Lopez, sat down with other stockholders to plan for 1997 and the
next three years. After the said meeting, she had with her a piece of paper with these statements
written on it:

1. Achieve an annual 30% sales growth

2. Improve profitability

Ms Lopez believes that above objectives if they would allow and approve longer credit terms
to their customers and pay raw materials within the discount period to their suppliers. Their normal
30-day credit period will be extended to 60 days and they will now pay 21 days after the receipt of
the raw materials to avail the 5% discount from suppliers.

By her own estimate, the company doesn’t need to expand their current production
facilities. Instead, the company will just have to operate from one to two-shifts operation. However,
they will need a bank loan to finance accounts receivables and inventories.

Ms Lopez met with Mr Tamesis, a loan officer of a local bank, and she was told that the bank
will finance the company’s needs if she can present an acceptable financial plan showing their
capability to repay the loan within a year. On the other hand, Society Clothing Corporation may also
be an eligible borrower under KASAPI Lending Program of the Social Security System which charges
16% interest with a loan term of three to five years.

II. Point of View

 Miss Sheila Lopez – Society Clothing Corporation stockholder and the Chief Executive Officer

III. Time Frame

1996
1997 and the next three years

IV. Statement of the Problem

Considering that Society Clothing Corporation have their goals to achieve 30% sales growth
and improve profitability, a loan is needed to finance accounts payables and inventories. They will
have to decide to acquire a bank loan that requires them to pay within a year or to borrow under
KASAPI Lending Program of the Social Security System which charges 16% interest with a loan term
of three to five years.

In whichever firm they decide to obtain financial assistance, Society Clothing should prepare
a cash budget in order to show their capability to repay either of the firm.