ARG Inc, is a manufacturer of dairy products that was formed three years ago by three...
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ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. 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 (S'000) Trade creditors (S'000) Interest 1,167 1,133 50 567 400 733 The industry averages for firms similar to ARG Inc. are Net Profit 9% Creditor days 70 days Margin Current ratio Quick ratio DEBT/Equity ratio Interest cover 15 times 21 0.8 times Stock days Debtor days 85 days 75 days 40% (using Book value) Required: As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more than three pages 1.5 line spaces to the board which discusses 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. The report should comment on whether the bank should provide ARG Inc. with the finance and on what basis. Annual Interest should be clearly calculated as part of the leverage analysis. ARG INC Income Statement for the years ending December 31 2019 2018 2017 (S'000) (S'000) (S'00) 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 Тах 560 560 493 140 140 123 Net Income 420 420 370 Dividends 20 20 20 Retained profit 400 400 350 ARG Inc Balance Sheet as at December 31 2019 2018 2017 (S'000) (000,ş) 800 (S'000) Fixed Assets 1.600 1.200 Current Assets Inventory Accounts Receivable 1,450 1,400 1,000 600 850 400 2,850 1,850 1,000 Total Assets 4,450 3,050 1,800 Current Liabilities 2300 1,300 450 Ordinary shares 1,000 1,000 1,000 Reserves 1,150 750 as0 Total Liabilities & Owners Equity 4,450 3,050 1,800 ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. 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 (S'000) Trade creditors (S'000) Interest 1,167 1,133 50 567 400 733 The industry averages for firms similar to ARG Inc. are Net Profit 9% Creditor days 70 days Margin Current ratio Quick ratio DEBT/Equity ratio Interest cover 15 times 21 0.8 times Stock days Debtor days 85 days 75 days 40% (using Book value) Required: As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more than three pages 1.5 line spaces to the board which discusses 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. The report should comment on whether the bank should provide ARG Inc. with the finance and on what basis. Annual Interest should be clearly calculated as part of the leverage analysis. ARG INC Income Statement for the years ending December 31 2019 2018 2017 (S'000) (S'000) (S'00) 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 Тах 560 560 493 140 140 123 Net Income 420 420 370 Dividends 20 20 20 Retained profit 400 400 350 ARG Inc Balance Sheet as at December 31 2019 2018 2017 (S'000) (000,ş) 800 (S'000) Fixed Assets 1.600 1.200 Current Assets Inventory Accounts Receivable 1,450 1,400 1,000 600 850 400 2,850 1,850 1,000 Total Assets 4,450 3,050 1,800 Current Liabilities 2300 1,300 450 Ordinary shares 1,000 1,000 1,000 Reserves 1,150 750 as0 Total Liabilities & Owners Equity 4,450 3,050 1,800 ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. 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 (S'000) Trade creditors (S'000) Interest 1,167 1,133 50 567 400 733 The industry averages for firms similar to ARG Inc. are Net Profit 9% Creditor days 70 days Margin Current ratio Quick ratio DEBT/Equity ratio Interest cover 15 times 21 0.8 times Stock days Debtor days 85 days 75 days 40% (using Book value) Required: As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more than three pages 1.5 line spaces to the board which discusses 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. The report should comment on whether the bank should provide ARG Inc. with the finance and on what basis. Annual Interest should be clearly calculated as part of the leverage analysis. ARG INC Income Statement for the years ending December 31 2019 2018 2017 (S'000) (S'000) (S'00) 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 Тах 560 560 493 140 140 123 Net Income 420 420 370 Dividends 20 20 20 Retained profit 400 400 350 ARG Inc Balance Sheet as at December 31 2019 2018 2017 (S'000) (000,ş) 800 (S'000) Fixed Assets 1.600 1.200 Current Assets Inventory Accounts Receivable 1,450 1,400 1,000 600 850 400 2,850 1,850 1,000 Total Assets 4,450 3,050 1,800 Current Liabilities 2300 1,300 450 Ordinary shares 1,000 1,000 1,000 Reserves 1,150 750 as0 Total Liabilities & Owners Equity 4,450 3,050 1,800 ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. 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 (S'000) Trade creditors (S'000) Interest 1,167 1,133 50 567 400 733 The industry averages for firms similar to ARG Inc. are Net Profit 9% Creditor days 70 days Margin Current ratio Quick ratio DEBT/Equity ratio Interest cover 15 times 21 0.8 times Stock days Debtor days 85 days 75 days 40% (using Book value) Required: As the newly-appointed Chief Financial Officer of ARG Inc. write a report of no more than three pages 1.5 line spaces to the board which discusses 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. The report should comment on whether the bank should provide ARG Inc. with the finance and on what basis. Annual Interest should be clearly calculated as part of the leverage analysis. ARG INC Income Statement for the years ending December 31 2019 2018 2017 (S'000) (S'000) (S'00) 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 Тах 560 560 493 140 140 123 Net Income 420 420 370 Dividends 20 20 20 Retained profit 400 400 350 ARG Inc Balance Sheet as at December 31 2019 2018 2017 (S'000) (000,ş) 800 (S'000) Fixed Assets 1.600 1.200 Current Assets Inventory Accounts Receivable 1,450 1,400 1,000 600 850 400 2,850 1,850 1,000 Total Assets 4,450 3,050 1,800 Current Liabilities 2300 1,300 450 Ordinary shares 1,000 1,000 1,000 Reserves 1,150 750 as0 Total Liabilities & Owners Equity 4,450 3,050 1,800
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Accounting Information Systems Controls and Processes
ISBN: 978-1119329565
3rd edition
Authors: Leslie Turner, Andrea Weickgenannt, Mary Kay Copeland
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