ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements.

ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows:

Year	2017	2018	2019
Overdraft ($000)	50	567	1,167
Trade creditors ($000)	400	733	1,133
Interest	?	?	?

The industry averages for firms similar to ARG Inc. are

Net Profit Margin	9%		Creditor days	70 days
Interest cover	15 times		Current ratio	21 times
Stock days	85 days		Quick ratio	0.8 times
Debtor days	75 days		DEBT/Equity ratio	40% (using Book value)

ARG INC

Income Statement for the years ending December 31

2019 2018 2017

($000) ($000) ($000)

Revenue 5,200 3400 2600

Cost of Goods sold 4570 2806 2104

Profit before interest & tax 630 594 496

Interest 70 34 3

Earnings before tax 560 560 493

Tax 140 140 123

Net Income 420 420 370

Dividends 20 20 20

Retained profit 400 400 350

ARG Inc

Balance Sheet as at December 31

2019 2018 2017

($000) ($000) ($000)

Fixed Assets

Current Assets

1,600 1,200 800

Inventory

1,450 1,000 600

Accounts Receivable 1,400 850 400

2,850 1,850 1,000

Total Assets 4,450 3,050 1,800

Current Liabilities

Ordinary shares

Reserves

2,300 1,300 450

1,000 1,000 1,000

1,150 750 350

Total Liabilities & Owners Equity 4,450 3,050 1,800

Question:

As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more tan three pages which discusses whether the company is likely to be successful if it approached its bank for a loan to undertake a project at a cost of 2.5 million. Your discussion should include an analysis of the current financial position and recent financial performance of the company. The report should comment on whether the bank should provide ARG Inc. with the finance and on what basis. Annual interest should be clearly calculated as part of the leverage analysis.