Credit Risk Management Frameworks in Practice: A Study of Ezzy Automation Ltd

Abstract

This study examines the credit risk management frameworks in practice at EZZY Automation Ltd., focusing on the company's credit procedures, financial performance, and potential improvements. Secondary data sources were utilized, including the company's annual reports (2018-2022), website, periodicals, internal documents, and relevant literature on credit and risk management. Data collection involved financial ratio analysis using standard formulas, and the data were analyzed with MS Excel and MS Word, presenting the results through graphs and charts. The results reveal that the Quick Ratio showed a consistent upward trend, reaching 0.97% in 2022 from 0.90% in 2019, indicating an improved capability to settle current liabilities promptly. Similarly, the Current Ratio increased to 1.17% in 2022 from 1.10% in 2020, reflecting enhanced liquidity and debt settlement capacity. However, profitability metrics such as Operating Profit Margin, Gross Profit Margin, and Net Profit Margin fluctuated significantly from 2018 to 2022, highlighting challenges including increasing expenses relative to revenue, pricing strategies affecting gross profits, and inefficient cost structures impacting net profits. The Return on Assets also varied, suggesting potential inefficiencies in asset utilization and investment decisions. Key findings reveal prolonged credit collection periods and challenges in obtaining formal client documents and financial statements, indicating potential hurdles in credit management efficiency. The findings suggest that while EZZY Automation Ltd. maintains strong liquidity, significant challenges in profitability management, asset utilization, and credit collection impact the company's overall financial health and credit risk management effectiveness.