Note*the company name will not be revealed just like the previous post as my money are still inside moolahsense, haha(this is not a sponsored post by the way)
My first default loan!!!:(
Issuer summary
Date of listing: DEC 2017
Amount:$500
Tenor:6 months
Repayment type: Equal installment
Quoting from the moolahsense website
- Equal installment:A promissory note by which an installment of the principal subscription amoung and/or interest accrued and due up to the date of payment shall be payable on such dates as set out in a repayment schedule specified in the promissory note, and on the maturity date, the principal subscription amount would have been paid in full
- Repayment term: Will be paid monthly
Quoting from Moolahsense website
- Target interest rate: The maximum rate the issuer is willing to provide the interest on the principal subscription amount which the issuer wished to obtain, as notified in writing by the issue to Moolahsese
Quote from valuepenguin:https://www.valuepenguin.sg/what-is-working-capital
- Working capital: It is a concept to describe a business ability to cover its short-term operating costs
- E.g For this campaign, I have funded $500 into it(which is the amount I actually funded, which is the minimum sum that moolahsense accept for the campaign at that time)
- As the target interest rate is 24%, this means that at the end of the tenor, which is 6 month I will expect to receive $560
- 100%=$500
- 12%(Interest for 12 month/1 years)=$60
- 112%(The Principal + the interest for six month)=$500 + $60
- Since the tenor is 6 months, each month I will receive $(inclusive of interest) in payment/equal installment
- 1month=$560/6=$93.33
- The issuer is a company incorporated in 2006
- The Issuer is in the building and construction industry and has around 10 employees
- The Issuer is a specialist in mechanical engineering project and has been engaged by government hospitals in Singapore to implement various automation projects.
- The Issuer is registered with the Building and Construction Authority of Singapore
- The Issuer seeks working capital to perform automation projects awarded by a government hospital in Singapore to the Issuer.
Will only reveal a part of the financial statement due to confidentiality. As I have mentioned a few weeks ago in my post, that I only mainly use this three ratio: current ratio, quick ratio and debt to equity ratio to decide in investing in a campaign, hence I will be showing its ratio below
Year 2016/Year 2015
(Current ratio 2016:3.62),(Current ratio 2015:49.79)
- A simple ratio of current asset divide by current liabilities
- Current liabilities are debt that needs to clear in the short term(in a year)
- If a company has a current ratio less then 1.0, do not invest in it
- If a company has a current ratio more then 2.0, May consider investing in it
- The higher the current ratio, the better
- For the current ratio of 2015:49.79, it is higher than the recommended range(>2.0)
- For the current ratio of 2016:3.62, it is higher than the recommended range(>2.0)
(Quick ratio 2016:3.62),(Quick ratio 2015:49.79)
- The quick ratio is almost similar to current ratio except that it is assumed that the company does not sell its inventories(e.g Toyota inventory is its car) or stock, it is still able to fulfill its debt
- If the company has a quick ratio of 0.75 and below, do not invest in it
- If the company has a quick ratio of 1.25 and above, May consider investing in it
- The higher the quick ratio the better
- For the quick ratio of 2015:49.79, it is higher than the recommended range(>1.25)
- For the quick ratio of 2016:3.62, it is higher than the recommended range(>1.25)
(Total liabilities/equity 2016:0.19),(Total liabilities/equity 2015:0.01)
- The debt ratio is calculated by total liabilities divided by the equity
- If the company has a debt ratio of 1.5 and above, do not invest in it
- The company should essentially have a debt ratio of 1.0, if the debt ratio is below 0.75, do consider investing in it
- The lower the debt to equity ratio the better
- For the Total liabilities/equity of 2015:0.01, it is out of the recommended range(<0.75)
- For the Total liabilities/equity of 2016:0.19, it is in the recommended range(<0.75)
Why did I invest in this loan?
- Both the current ratio 2015(49.79), quick ratio 2015(49.79) are above the recommended ratio of >2.0 and >1.25 respectively(This default loan is the epitome that if something is too good to be true, it probably is)
- The current ratio 2016(3.62), quick ratio 2016(3.62) are above the recommended ratio of >2.0 and >1.25 respectively and its Total liabilities/equity 2016(0.19) is in the recommended range of <0.75, as the financial statement ratio it met all of the above-recommended ratios, I would invest in the campaign(again if something is too good to be true, it probably is)
- The Total liabilities/equity (2015) is 0.01 while the Total liabilities/equity (2016) is 0.19, suggesting it is increasing and this most probably means that the company are taking more on their liabilities/debt
- Even though this loan has defaulted, nevertheless below is the supposed repayment schedule so far(I only got dec and Jan repayment, by the way)
link on how too read the effective interest rate for moolahsense:http://letscrowdsmarter.com/understanding-interest-rates/
Monthly interest rate:interest/start balance=$10.00/$500=2%(Percentage conversion must *100)
Effective interest rate:2%*12=24%(Same as the target interest rate)
From the above picture, you can see that the Net repayment is at $89.26 instead of the $93.33 that I have mentioned above at the working capital, hence I will do a calculation here again
1-month repayment:$89.26
6-month repayment:$89.26*6=$535.56
$500(the amount I put in this campaign=100%
$535.56=(100/500)*535.56=107.112%
107.112%-100%=7.112%
The target interest rate as you can see in my above post is at around 24%P.A, after taking into account of the tenor rate being 6 months (12% only), compare to 7.112% its almost 5% difference(i shall call this net interest rate instead)in this campaign. To conclude, this means that if you invest in a (24%P. A) high-interest rate campaign in moolahsense, you will get only about 7.112%.
And of course, I was a bit depressed at that time because after all seeing your hard earn money go down a drain...there was simply no words to describe...
Nevertheless, after that incident, I pick myself up and since then I had switch to investing in other areas such as stocks, bond etc(e.g Learning investing/trading together part 1(Why invest in stocks?)
But of course, at that time I still didn't know that this loan was going to be eventually defaulted, hence leading to me investing in my sixth campaign...
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