Lucky Australia Pty Ltd has been a customer of Bank of Australia since 2011. The industrial operations of this designer furniture manufacturing company are based in Fyshwick Industrial Area, Canberra. Mark and Julie Cotter own Lucky. The structure is a standard two-dollar company, with the Cotters owning one share each. Mark is a qualified carpenter and Julie handles administration and sales. Both are aged in their early 50s. When they started the company in 2011, they made standard furniture for the household market. They initially faced hardship as the brand was not known. But over the years, the brand got well established and with the advent of e-business, they have expanded multi-fold supplying designer furniture throughout Australia. The business currently employees 15 staff. They have two sons. Simon helps in business and contributes equity equal to that of his father and fathers wife while Peter (son of Mark and Julie) is studying at the university. The business produces a range of designer furniture that include, dining table, chairs, sofa, ensemble, and study desk. Given their reputation in the marketplace, they are considering expanding in the office furniture line. The financial statements of Lucky Australia Pty Ltd were as below:

Lucky Australia Pty Ltd
Income statement for the year ending	A$ 000
	2021		2022
Cash sales	15000		16000
Credit sales	135000	150000	171000	187000
Less Cost of goods sold		118000		149000
Gross Profit		32000		38000
Less: Expenses
Warehousing	5000		5500
Transport	2000		5000
Administration	9500		9500
Selling	5500		7000
Taxes	1500		1500
Interest on private loan	1000	24500	1000	29500
Net Profit		7500		8500
Balance Sheet as at the end of
	2021		2022
Non-current assets		15000		20000
Trade debtors	25000		41000
Cash at bank	5000		3500
Inventory	30000		47000
Total current assets	60000		91500
Trade creditors	25000		38000
Total current liabilities	25000		38000
Working Capital		35000		50350
Total assets		50000		73500
Long-term private loan		12500		15000
Share capital		17500		17500
Reserves and Surplus		20000		41000
Total Liabilities and Equity		50000		73500

You have been given the following additional information (a) all sales were made from the sales outlet specially created at the companys warehouse

(b) the purchase prices have remained constant during the period under question

(c) the inventory as of 01 January 2023 was A$20,000,000

(d) Lucky has a constant 35% of its yearly net profits kept as retained earnings

(e) Luckys market value of equity was traded at 0.5 and 0.75 times that of its book value of equity in 2021 and 2022, respectively.

Please note that the ratios relating to capital employed would be computed from the capital at the end of the year.

Before making an onsite visit and setting up a meeting with Mark and Julie, your manager has asked you to A. Conduct a comprehensive credit risk analysis (includes calculating the relevant financial ratios, Altmans Z score and analyzing the 5Cs) and prepare a note that would help him understand the financial situation of the business.