An entry written by Ludvika Gryskiewicz ’19, an accounting and management senior in the School of Business and Economics at UW-Stevens Point, and Accounting Lecturer Bo DeDeker won the Wisconsin Chapter Risk Management Association (RMA) Article Writing Competition and advanced to the national level.
“Reflections of a Risk Management Analysis Case Study”
The two main criteria the articles were evaluated on were: (1) the content of the article – its originality, insights, analysis, etc., and (2) the presentation of the article – style, grammar, etc.
They will now compete for a chance to be published in the National RMA Journal, receive $1,000 from the National RMA and received an all-expense paid trip to receive their award during the RMA Annual Risk Management conference in New Orleans.
Reflections of a Risk Management Analysis Case Study
Accounting students don’t typically think about the banking world, or even more specifically, credit analysis. Our studies are focused heavily on balance sheets, income statements, and cash flow statements with a lot of debits and credits thrown in for good measure. With these skills, and the experience of our professors, our traditional accounting program often indoctrinates students into the world of CPA firms and manufacturing plants, focusing our futures on the “traditional” accounting careers. This was the direction I was surely headed for when my advisor asked me if I wanted to do an RMA Organizational Credit Analysis competition. I was hesitant but agreed to do the competition if he thought we could get a good team together. My hesitancy was not for fear of public speaking, I had just completed a Speech Crafters course, but more because the focus was on the financial analysis of a business and the risks associated with financing a loan. As an accounting major of traditional accounting program, this was not an area of comfort and strength; rather I saw it as a significant weakness in my skill set. Would I even be able to understand this material?
Hastily, with the help of our advisor, a rag tag team of accountants, that had never even met each other, was put together just one week before the competition. To complicate matters, many of the other teams in the competition had started their analysis at least a month in advance and were all banking majors, a program that UWSP, a smaller school, does not offer. Our team consisted of three students: Logan, a junior who had just won a NCAA Division III Hockey National Championship, his brother Aidan, a sophomore that had been unknowingly volunteered by his older brother, and me! Here we were, three accounting students, with just one week to get everything together for this RMA Credit Analysis Competition vying against teams that were majors in banking and had a month head start on us. We were the definite underdog.
Upon committing to the competition and receiving the case study file, I opened the document, worrying about what I had gotten myself into. As I began to read, though, my fear turned into a burst of joy. To my surprise, our case study had documents that I have seen many times before. In my first accounting class we were taught about balance sheets, income statements, and cash flows. The case study also had industry ratios, accounts receivable and financial analysis, topics that although I had some idea about, I was not as strong as I needed to be for the competition. Since we were familiar with half of the material, we knew where we were going to start working. Luckily, to help us with the information that we were not as strong with, we were given a mentor from a local bank. We also had our professor as a resource, and access to a wealth of information on the RMA website which included journals and industry white pages.
The case study was called the TaTonka Brewing Company. In the case, TaTonka Brewing was a microbrewery interested in borrowing additional funding from their current banking institution to refinance family debt that had secured their manufacturing building and expand operations with new advanced equipment to meet increasing market demands. The crux of the case was financing two loans, a conventional mortgage, and an equipment loan. Each loan had separate identifiable purposes that required different financing terms based on the collateral of the loans, and the risk associated with each financing. To complicate the credit analysis, TaTonka Brewing was in a very competitive market with an advanced level of legal requirements. This case was going to test our abilities.
So, with our team put together and our resources available, we spent our one and only week diving into the material and analyzing the data. The analysis of the balance sheet, income statement and cash flows were a breeze, but analyzing the other financial topics wasn’t quite so easy, as this information was new and rather foreign to us. Our strategy was to start with an outline providing analysis of the information we knew, while making comments on the financial and operational terms that we felt were questionable. This new information would need some researching and additional documentation to clarify the associated risks. The big obstacle that we had was learning how to analyze this new data in a slightly different perspective. We used several techniques to accomplish this task.
We relied heavily on our banking mentor; we had many questions for him. This was a tricky part however, he wanted to be able to help us, but not give us too much information. He gave us a basic understanding of the case study and helped lead us into a direction where we would be able to research answers for the information. This is where we learned about the different type of loan options, different interest rate options, and the number of years that we could use for our loan structures. Our mentor’s advice gave us a good base to structure our loan offers. He also helped show us the wealth of information that was available on the RMA website. There we found several journals and a whitepaper that was used to analyze the current trends happening in the microbrewery industry. This whitepaper was key to finding much of the information we needed to decipher the case successfully.
Our advisor was also a huge help; he helped us with some of our research and taught us how to do our own research. When he found information, he didn’t just tell us what we needed, but he led us to the information to decipher ourselves. When we had questions, he was always there to help us, regardless of how late we were up. During our week of analysis, it was not uncommon for us to all be up at 2:30 am editing and researching our information. Along with our advisor, we interviewed several other professors that specialized in financing and risk. Without the help of these professionals, our analysis would have never been complete or up to standard. It was nice to know that regardless of the topic, these professors were willing to share their knowledge with us.
Whether it was magic or just fate, as the week expired, our risk analysis came together. It was no doubt that the last two days before the competition were probably the longest for us! Thursday night Logan and Aidan worked late into the night adding the rest of the information to our template and finalizing our presentation while I was at work. On the last day after my class on Friday, I was able to finalize and proof all our documentation. After making sure all our formatting was correct, our paperwork was ready to be printed and put together for our two different presentations. Our original plan was to leave for Madison at noon on that Friday, by the time all our editing, proofing and copying was done we were 5 hours late. We would get a late start to the site of the competition, but we knew we had a strong, well analyzed case study to present.
Saturday morning came, and we were ready! Once we got to UW-Madison, we used some of the skills that we have learned at UW-Stevens Point, including networking. We used our time before the daily agenda was announced to meet some of the RMA members and get to know them on a personal level. We knew by looking at our competitors that we would need an edge, networking provided us that edge, making us more comfortable and developing an initial rapport with the judges. During the day, before our presentations, we reviewed our case many times, practicing our presentation so we could sync together as a team.
We were confident going into our first presentation; this would be the presentation to the loan officers, trying to convince them our loan structure and risk analysis was strong. Overall, our presentation was well delivered. We knew, based on the reaction of the committee, that we’d discovered a few points the other teams had not. TaTonka was not in compliance with current regulations and needed to update their licensing agreements. We also discovered an error in their income statement, something any first-year accounting student would have found, but not our competition, since they were not strong accountants. We knew our proposal and numbers and were certain our first presentation was strong.
Our second presentation was a little more difficult. This presentation was directed to the customer, informing them of the loan covenants that we had selected for our loans. Our training as accountants had put us on the path of a conservative loan portfolio but this was a little tough to sell to a business seeking a loan from us. We also had to inform the customer we felt that their financials were incorrect, the RMA committee took us to task on this. Although it would have been much easier to sell and loan with easy to accomplish covenants, it would have left the bank open for undue risk. I guess this was the lesson of our case study, how to balance risk while meeting our lenders’ needs.
Once our presentations were complete, all we had to do was wait for our results. There were seven teams vying for the top three spots that would earn money and a trophy. We knew that we were underdogs in this competition with teams that had more time to prepare and extensive training on risk analysis, but still we waited with anticipation on how we had done. As the results were tallied and the judges read their results we listened intently, “and the third-place winner is: UW Stevens Point!” We were shocked and stared at each other. A little disappointed we received third, but as reality sunk in, we realized we’d beaten 4 other teams with much better training and skill. We were proud!
That last week may have been rough for us, but not only did we learn more about the banking industry, we also had a great time learning how the three of us worked together. Each of us had our specialty within our group and were able to add our own special value. It was the perfect mix of skill and knowledge; this rag tag team of accountants had taken on the impossible and won. I learned more in this week than I had in a semester of traditional schooling, and I had made some new friends.
We performed so well, in fact, that a President of a local bank offered an internship position for one of us, and another on our team received an internship with a local real estate agent to help obtain financing for real estate project. This RMA competition, which had at first seemed like an insurmountable task, in the end was a transformational life changing event.