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Q14. a) Trust Bank is a major provider of credit to businesses and has been approached by two companies. At the moment Trust Bank only
Q14. a) Trust Bank is a major provider of credit to businesses and has been approached by two companies. At the moment Trust Bank only has the resources to provide a credit package (bank overdraft and long-term loans) to one of these companies. Due to many bad lending decisions in the past, Trust Bank is cautious about the companies that it lends credit to. Statements of financial position as at 31 December 2021 Big Ltd '000 Four Ltd '000 4,570 6,330 Assets Non-current assets Current assets Inventories Trade receivables Bank balance 510 670 340 890 1,090 1,520 6,090 1,980 8,310 Equity Share capital Retained earnings 2,000 2,820 4,820 2,000 1,030 3,030 500 3,500 Liabilities Non-current liabilities Long-term loans Current liabilities Trade payables Taxation Bank balance 1,130 450 320 210 440 770 6,090 1,780 8,310 Required: Calculate two liquidity ratios and one gearing ratio for Big Ltd and Four Ltd. Based on these ratios and the financial statements, provide a recommendation to Trust Bank about which of the two companies they should lend to. [10 marks]
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