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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

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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 $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: Year Overdraft ($'000) Trade creditors ($'000) Interest 2017 50 400 ? 2019 1,167 2018 567 733 ? 1,133 ? 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 2.1 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 $2.5 million. Your discussion should include an analysis of the current financial position and recent financial performance of the company. The report should comment on whether the bank should provide ARG Inc. with the finance and on what basis. Annual Interest should be clearly calculated as part of the leverage analysis. ARG INC Income Statement for the years ending December 31 2018 2017 ($'000) Revenue Cost of Goods sold Profit before interest & tax Interest Earnings before tax Tax Net Income Dividends 2019 ($'000) 5,200 4570 630 70 560 140 420 20 ($'000) 3400 2806 594 34 560 140 420 20 2600 2104 496 3 493 123 370 20 Retained profit 400 400 350 ARG Inc Balance Sheet as at December 31 2019 ($'000) 2018 ($'000) 2017 ($'000) 1,600 1,200 800 Fixed Assets Current Assets Inventory Accounts Receivable 1,450 1,400 1,000 850 600 400 2,850 1,850 1,000 Total Assets 4,450 3,050 1,800 Current Liabilities Ordinary shares Reserves 2.300 1,000 1,150 1.300 1,000 750 450 1,000 350 Total Liabilities & Owners Equity 4,450 3,050 1,800

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