You are answering the questions after looking at the balance sheet and profit and lost.

The Head of Credit has requested that you perform the following preliminary analysis: Ratio analysis for year 2 and year 3, using the available financial statements (10 marks) Analyse the business performance (10 marks) Based on the financial statements and the analysis you have performed clearly outline what additional information you would request to further clarify your assessment. (5 marks) Explain what other areas should be assessed as part of this credit proposal. (5 marks) Based on your preliminary evaluation, state whether you are prepared to tentatively offer credit to this company, providing reasons for your position, stating any conditions you may have. (5 marks) State and explain the limitations associated with ratio analysis. (5 marks)

Profit and Loss Accounts Clothing Ltd Yr 1 Yr 2 Yr 3 Sales Cost of Goods Sold 900.000 (810.000) 1.050.000 (956,000) 1,300,000 (1.209.000) Gross Profit Admin and Distribution Expenses 90,000 (57.000) 94,000 (59,000 91.000 (78,000) Operating Profit (PBIT) Interest Paid Profit Before Tax Tax 33,000 (8.000) 25.000 (8,000) 34,500 (8.500) 26.000 (10,000) 13,000 (11.000) 2.000 Attributable Profit After Tax 17.000 16.000 2.000 The Head of Credit has requested that you perform the following preliminary analysis: Ratio analysis for year 2 and year 3, using the available financial statements (10 marks) Analyse the business performance (10 marks) Based on the financial statements and the analysis you have performed clearly outline what additional information you would request to further clarify your assessment. (5 marks) Explain what other areas should be assessed as part of this credit proposal (5 marks) Based on your preliminary evaluation, state whether you are prepared to tentatively offer credit to this company providing reasons for your position, stating any conditions you may have. (5 marks) State and explain the limitations associated with ratio analysis (5 marks) . Section A-40%, one (1) Question. Question 1 The following comprise the balance sheets and income statements for Clothing Imports Limited; a company engaged in the import and subsequent wholesale of fashion clothing from the far cast. Balance Sheet Clothing Ltd Yr 1 Yr 2 Yr 3 Current Assets: Cash Debtors 150,000 170,000 230,000 170,000 150,000 135.000 230,000 257,000 190,000 Quick Assets Stock Work in Progress Total Current Assets 285.000 360,000 487.000 Current Liabilities: Creditors Hire purchase Bank 140,000 2,000 90,000 8,000 10,000 250,000 180,000 2.000 105,000 10,000 10.000 307.000 280,000 2.000 138,000 10,000 10,000 435.000 Directors' Loans Total Current Liabilities Net Current Assets 35.000 53,000 52.000 Fixed Assets: Property at Cost Machinery and Plant Fixtures and Fittings Motor Vehicles Total Fixed Assets 36.000 5.000 2.000 8.000 51.000 36.000 4,000 2.000 6,000 48.000 36.000 3.000 4.000 10,000 53.000 Long Term Liabilities: Bank Loans Long Term HP Total Deferred Liability 6,000 6.000 5.000 5.000 7.000 7.000 Net Tangible Assets Share Capital P&L Account 80.000 20.000 60.000 96.000 20.000 76.000 98.000 20,000 78.000 Shareholders' Funds 80.000 96.000 98.000 Profit and Loss Accounts Clothing Ltd Yr 1 Yr 2 Yr 3 Sales Cost of Goods Sold 900.000 (810.000) 1.050.000 (956,000) 1,300,000 (1.209.000) Gross Profit Admin and Distribution Expenses 90,000 (57.000) 94,000 (59,000 91.000 (78,000) Operating Profit (PBIT) Interest Paid Profit Before Tax Tax 33,000 (8.000) 25.000 (8,000) 34,500 (8.500) 26.000 (10,000) 13,000 (11.000) 2.000 Attributable Profit After Tax 17.000 16.000 2.000 The Head of Credit has requested that you perform the following preliminary analysis: Ratio analysis for year 2 and year 3, using the available financial statements (10 marks) Analyse the business performance (10 marks) Based on the financial statements and the analysis you have performed clearly outline what additional information you would request to further clarify your assessment. (5 marks) Explain what other areas should be assessed as part of this credit proposal (5 marks) Based on your preliminary evaluation, state whether you are prepared to tentatively offer credit to this company providing reasons for your position, stating any conditions you may have. (5 marks) State and explain the limitations associated with ratio analysis