Using suitably ratios, analyse the information provided and recommend what action should be taken.(25 Marks)

Desi has carried on Business for a number of years as a retailer of a wide variety of consumer products and it operates from a number of stores. In recent years the entity has found it necessary to provide credit facilities to its customers in order to maintain growth in revenue. As a result of this decision the liability to its bankers has increased substantially. Extracts from the financial statements for the year are provided below. INCOME STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 2011 2012 $M SM SM Revenue 1,850 2,200 2,500 Cost of Sales (1,250) (1,500) (1,750) Gross Profit 600 700 750 Other Operating costs (550) (640) (700) Profit from operations 50 60 50 Interest from credit sales 45 60 90 Interest payable (25) (60) (110) Profit before taxation 70 60 30 Income tax expense (23) (20) (10) Profit for the year 47 40 20 STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2010 2011 2012 SM SM $M Property, Plant and Equipment 278 290 322 Inventories 400 540 620 Trade Receivables 492 550 633 Cash 12 12 15 1,182 1,392 1,590 Share Capital 90 90 90 Reserves 282 292 282 372 382 372 Bank Loans 320 520 610 Other Interest bearing borrowings 200 200 320 Trade Payables 270 270 280 Tax Payable 20 20 8 1182 1392 1590 Other Information . Depreciation charged for the three years in question was as follows: Year ended 30 June 2010 2011 2012 SM SM SM 55 60 70 The other interest bearing borrowings are secured by a floating charge over assets of Citizen. Their repayment is due on 30 June 2012. The Bank loans are unsecured. The maximum lending facility the bank will provide is $630m. . Over the past three years the level of credit sales has been Year ended 30 June 2010 2011 2012 SM $M SM 300 400 600 The entity offers extended credit terms for certain products to maintain market share in a highly competitive environment. Given the steady increase in the level of bank loans which has taken place in recent years, the entity has recently written to its bankers to request an increase in the lending facility. The bank is concerned at the steep escalation in the level of the loans and has requested an urgent meeting