The managing director (MD) of Perlu Bantuan Sdn. Bhd. (PB) has approached your company requesting a substantial increase in their credit facilities in order to fund a 20% growth expansion programme to prepare for the post Covid-19.

PB has been in business for the past five year producing assorted types of compatible refilled ink printer cartridges and refills for most branded printers on the market. PB distribute its refilled cartridges and inks via major bookstores, computer accessories stores, supermarkets, and its retail store service centre at its factory in Bandar Sunway. PB also sells via online via Lazada and Shopee. Your company is the major supplier of PB, supplying bulk black and colour ink liquids for PB to refill and re-manufacture into various types of compatible cartridges or printer tanks, etc. Approximately 60% of PBs cost of sales is the bulk ink liquids.

The present credit limit enjoyed by PB is RM500,000 and 14 days payment term. The conduct of the account is good, with a balance outstanding nearing the credit limit most of the time, and repayment is consistent and good, albeit at approximately 30 days. PB is now requesting an increase in credit terms from RM500,000 to RM1,000,000 and credit terms from 14 days to 60 days with the MDs personal guarantee.

PB provided you with the latest management accounts for the year ended 31 May 2021 and the unqualified audited accounts for the year ended 31 May 2020 below.

(d) From the corporate treasury management point of view, it appears that PB did not use bank overdraft to finance its business. Describe the merits and limitations of using a bank overdraft to finance PBs working capital arrangements. What other bank financing alternatives PB has, considering the state of their financial position as of 31 May 2021?

Perlu Bantuan Sdn. Bhd. Income Statement for the year ended Unaudited 31 May 2021 RM'000 RM'000 Audited 31 May 2020 RM'000 RM'000 Revenue Cost of sales Gross profit Distribution costs Administration expenses 20,075 12,045 8,030 18,250 10,585 7,665 4,015 1,500 3,300 1,200 Operating profit Interest Profit before tax Tax Profit attributable to shareholders Dividend Retained profit for the year 5,515 2,515 500 2,015 715 1,300 800 500 4,500 3,165 500 2,665 930 1,735 1,000 735 Perlu Bantuan Sdn. Bhd. Statement of Financial Position as at Unaudited 31 May 2021 RM'000 RM'000 Audited 31 May 2020 RM'000 RM'000 10,000 9,900 Plant and machinery Current assets Inventories Debtors Bank 4,500 2,400 100 7,000 3,480 2,000 595 56,075 Current liabilities Trade creditors Proposed dividend Taxation Accruals 1,300 800 400 250 2,750 500 1,000 425 300 2,225 Net current assets 4,250 14,250 5,000 9,250 3,850 13,750 5,000 8,750 10% debenture Financed by: Ordinary shares of RM1 each Retained profit 2,250 7,000 9,250 2,250 6,500 8,750 Perlu Bantuan Sdn. Bhd. Income Statement for the year ended Unaudited 31 May 2021 RM'000 RM'000 Audited 31 May 2020 RM'000 RM'000 Revenue Cost of sales Gross profit Distribution costs Administration expenses 20,075 12,045 8,030 18,250 10,585 7,665 4,015 1,500 3,300 1,200 Operating profit Interest Profit before tax Tax Profit attributable to shareholders Dividend Retained profit for the year 5,515 2,515 500 2,015 715 1,300 800 500 4,500 3,165 500 2,665 930 1,735 1,000 735 Perlu Bantuan Sdn. Bhd. Statement of Financial Position as at Unaudited 31 May 2021 RM'000 RM'000 Audited 31 May 2020 RM'000 RM'000 10,000 9,900 Plant and machinery Current assets Inventories Debtors Bank 4,500 2,400 100 7,000 3,480 2,000 595 56,075 Current liabilities Trade creditors Proposed dividend Taxation Accruals 1,300 800 400 250 2,750 500 1,000 425 300 2,225 Net current assets 4,250 14,250 5,000 9,250 3,850 13,750 5,000 8,750 10% debenture Financed by: Ordinary shares of RM1 each Retained profit 2,250 7,000 9,250 2,250 6,500 8,750