ASC Enterprise, is a manufacturer of dairy products that was formed three years ago by three brothers who, as directors, retain sole ownership of its ordinary share capital. One-third of the initial share capital was provided by each brother. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ASC Enterprise has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows:

Year	2017	2018	2019
Overdraft ($'000)	50	567	1,167
Trade Creditors ($'000)	400	733	1,133
Interest	?	?	?

The Industry averages for firms similar to ASC Enterprise are

Net Profit Margin	9%		Creditors days	70 days
Interest Cover	15 Times		Current ratio	2.1 times
Stock days	85 days		Quick ratio	0.8 times
Debtor days	75 days		DEBT/Equity ratio	40% (using Book value)

Required:

As the newly-appointed Chief Financial Officer of ASC Enterprise. write a report to discuss whether the company is likely to be successful if it approaches its bank FCIB for a loan to undertake a project at a cost of $2.5 million. Your discussion should include an analysis of the current financial position and recent financial performance of the company. Comment on whether the bank should provide ASC Enterprise with the finance and on what basis. Annual Interest should be clearly calculated as part of the leverage analysis.

Transcribed Image Text:

ASC Enterprise Income Statement for the years ending December 31 2019 2018 2017 ($'000) (S'000) (S'000) Revenue 5,200 3400 2600 Cost of Goods sold 4570 2806 2104 Profit before interest & tax 630 594 496 Interest 70 34 3 Earnings before tax 560 560 493 140 140 123 Tax Net Income 420 420 370 20 20 20 Dividends Retained profit 400 400 350 ASC Enterprise Income Statement for the years ending December 31 2019 2018 2017 ($'000) (S'000) (S'000) Revenue 5,200 3400 2600 Cost of Goods sold 4570 2806 2104 Profit before interest & tax 630 594 496 Interest 70 34 3 Earnings before tax 560 560 493 140 140 123 Tax Net Income 420 420 370 20 20 20 Dividends Retained profit 400 400 350

Answer rating: 100% (QA)

Key ratio of ASC Enterprise based on current financial performance and position With current financi... View the full answer