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 $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: 2017 50 Year Overdraft ($'000) Trade creditors ($'000) Interest 2018 567 733 ? 2019 1,167 1,133 ? 400 ? The industry averages for firms similar to ARG Inc. are Creditor days 70 days Net Profit 9% Margin Interest cover 15 times Stock days 85 days Debtor days 75 days Current ratio Quick ratio DEBT/Equity ratio 21 times 0.8 times 40% (using Book value) Required: As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more than three pages 1.5 line spaces to the board which discusses whether the company is likely to be successful if it approaches its bank FCIB for a loan to undertake a project at a cost of $2.5 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 $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: 2017 50 Year Overdraft ($'000) Trade creditors ($'000) Interest 2018 567 733 ? 2019 1,167 1,133 ? 400 ? The industry averages for firms similar to ARG Inc. are Creditor days 70 days Net Profit 9% Margin Interest cover 15 times Stock days 85 days Debtor days 75 days Current ratio Quick ratio DEBT/Equity ratio 21 times 0.8 times 40% (using Book value) Required: As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more than three pages 1.5 line spaces to the board which discusses whether the company is likely to be successful if it approaches its bank FCIB for a loan to undertake a project at a cost of $2.5
