WERNER Ltd. wants to forecast its financial requirement for 2020. It's Statement of Financial

Position and Income Statement for the year 2019 is presented below. The firm's current sales are

GHc400,000. WERNER Ltd. expects to increase sales by GHc40,000 in 2020, earn a profit margin

on sales of 20 %, and pay 40 % of its earnings out as dividends to its owners. The firm has sufficient

capacity to increase sales to US$440,000 without requiring additional fixed assets. WERNER Ltd.

believes that all current assets and all current liabilities apart from current portions of long-term

borrowings vary directly with sales. 50% of sales are usually on credit and the value of opening

stock at the begining of 2019 was 6,000.

Required:

a. Determine the External financing needs of WERNER Ltd. for the year 2020. (5 Marks)

b. WERNER Ltd is contemplating taking a loan to finance in a new plant that will

cost GHc 1,500,000 in 2016. Calculate the following financial ratios:

i. Leverage

ii. Profitability

iii. Efficiency

iv. Liquidity

v. Based on your ratio analysis, advise WERNER Ltd whether it is a good idea to take

up the loan.