Question $1(100$ Marks$)$ Citizen has carried on Business for a number of years as a retailer of a wide variety of consumer products and it operates from a number of stores. In recent years the entity has found it necessary to provide credit facilities to its customers in order to maintain growth in revenue. As a result of this decision the liability to its bankers has increased substantially. Extracts from the financial statements for the year are provided below. INCOME STATEMENTS FOR THE YEAR ENDED $30$ JUNE $20$X$120$X$220$X$3$ $M $M $M Revenue $1,8502,2002,500$ Cost of Sales $(1,250)(1,500)(1,750)$ Gross Profit $600700750$ Other Operating costs $(550)(640)(700)$ Profit from operations $506050$ Interest from credit sales $456090$ Interest payable $(25)(60)(110)$ Profit before taxation $706030$ Income tax expense $(23)(20)(10)$ Profit for the year $474020$ STATEMENT OF FINANCIAL POSITION AT $30$ JUNE $20$X$120$X$220$X$3$ $M $M $M Property, Plant and Equipment $278290322$ Inventories $400540620$ Trade Receivables $492550633$ Cash $1212151,1821,3921,590$ Share Capital $909090$ Reserves $282292282372382372$ Bank Loans $320520610$ Other Interest bearing borrowings $200200320$ Trade Payables $270270280$ Tax Payable $202081182139215904$ Other Information $$ Depreciation charged for the three years in question was as follows: Year ended $30$ June $20$X$120$X$220$X$3$ $M $M $M $556070$ The other interest bearing borrowings are secured by a floating charge over assets of Citizen. Their repayment is due on $30$ June $20$X$3.$ The Bank loans are unsecured. The maximum lending facility the bank will provide is $$630$m$.$ Over the past three years the level of credit sales has been Year ended $30$ June $20$X$120$X$220$X$3$ $M $M $M $300400600$ The entity offers extended credit terms for certain products to maintain market share in a highly competitive environment. Given the steady increase in the level of bank loans which has taken place in recent years, the entity has recently written to its bankers to request an increase in the lending facility. The bank is concerned at the steep escalation in the level of the loans and has requested an urgent meeting. Required $($a$)$ Using suitable ratios, analyse the information provided and recommend what action should be taken. $(75$ Marks$)$