Conday and Co. Ltd has been in operation for three years and produces antique reproduction furniture for the export market. The most recent set of financial statements for the business is set out as follows:

Notes:
1 The loan notes are secured on the land and buildings.
2 S elling and distribution expenses include £170,000 in respect of bad debts.
3 A dividend of £160,000 was paid on the ordinary shares during the year.
4 The directors have invited an investor to take up a new issue of ordinary shares in the business at £6.40 each making a total investment of £200,000. The directors wish to use the funds to finance a programme of further expansion.

Required:
(a) Analyse the financial position and performance of the business and comment on any features that you consider significant.
(b) State, with reasons, whether or not the investor should invest in the business on the terms outlined.

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Statement of financial position as at 30 November £000 ASSETS Non-current assets Property, plant and equipment (cost less depreciation) Land and buildings Plant and machinery 228 762 990 Current assets Inventories 600 Trade receivables 820 1,420 2,410 Total assets EQUITY AND LIABILITIES Equity Ordinary shares of £1 each Retained earnings 700 365 1,065 Non-current liabilities Borrowings – 9% loan notes (Note 1) 200 Current liabilities Trade payables 665 Taxation 48 Short-term borrowings (all bank overdraft) 432 1,145 2,410 Total equity and liabilities Income statement for the year ended 30 November £000 Revenue 2,600 Cost of sales (1,620) Gross profit Selling and distribution expenses (Note 2) Administration expenses Operating profit Finance expenses 980 (408) (194) 378 (58) Profit before taxation 320 Taxation (95) Profit for the year 225