Seville pic is a rapidly expanding trading and manufacturing company. It is currently seeking to extend its product range in new markets. To achieve this growth it needs to raise ‚¬800 000. The directors are considering two sources of funds:
(i) A rights issue at ‚¬2.00 per share. The shares are trading at ‚¬2.50 (2000 ‚¬2.20) per share.
(ii) A bank loan at an interest rate of 15% and repayable by instalments after two years. The bank would want to secure the loan with a charge over the company's property.
The following are extracts from the draft financial statements.

Operating profit
Operating profit has been arrived at after charging or crediting the following:

The extraordinary loss consists of reorganization costs in a branch where a reduction in activity involved various measures including redundancies. Attributable tax credit is ‚¬38 000.
Deferred taxation Deferred taxation has not been provided because it is not considered probable that a liability will crystallize. If deferred taxation had been provided in full then a liability for the year of ‚¬7000 would have arisen (2000 ‚¬8000).
Contingent liability There is a contingent liability of ‚¬85 000 (2000 ‚¬80 000) in respect of bills of exchange discounted with bankers.
Further investigation has revealed that stock includes items subject to reservation of title of ‚¬40 000 and obsolete or slow moving items of ‚¬28 000 (2000 ‚¬28 000).
An age analysis of debtors has revealed that debts overdue by more than one year amount to ‚¬40 000 (2000 ‚¬40 000).
The auditors are yet to report and there is some discussion as to the classification of the gain on disposal and the reorganization costs.
The directors forecast that the new funds will generate an operating profit of ‚¬300 000, and that the 2001 operating profit will be repeated. If new shares are issued the dividend will increase to ‚¬150 000.
Required:
Prepare a full report on progress, strengths and weaknesses, supported by ratio analysis.

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2000 6000 1967 636 (45 591 (150) 441 2001 6000 1991 698 Tumover Operating profi Interest payable Profit before taxation Taxation Profit after taxation Extraordinary item Profit for the year Fixed assets 643 503 453 1504 1 802 679 361 tangible intangible 1132 247 Draft balance sheet Current assets stocks 684 471 80 cash in hand and at bank Creditors due within one year trade taxation dividends 336) 140) (80) (190) (80) Creditors due after more than one year 10% debentures, repayable 2004 finance lease (450) 100 1981 (450y 1 608 Capital and reserves ordinery share capital E1 shares revaluation reserve profit and loss 800 144 664 1 608 800 1 037 1981 2000 E000 110 300 Depreciation Gain on disposal of property (as part of a sale E000 150 95 and leaseback transaction