Trade Mark Limited is in the business of supplying conveyor belts to the mining companies on the

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Question:

Trade Mark Limited is in the business of supplying conveyor belts to the mining companies on the Copperbelt. The company banks with one of your competitors. The directors have become disenchanted with their current bankers and have called to see you ask whether you would be prepared to take over the company’s account and grant an overdraft of K250, 000.
The company commenced trading on 1 January 2016 and the directors have provided you with audited accounts for their first year (31st December 2016) and draft figures for the following 6 months (30th June 2017).
The company imports its bearings from South Africa and now has become one of the leading suppliers in the mine locomotive industry. The prime mover of the company, Mr. Mumba, is a Mechanical Engineer who once worked for the mines but decided to resign so that he can start his own business.
In conversation with the directors, you establish that their current bankers are not willing to give them the support they need so that they can grow the business and hence have refused to grant them an overdraft facility of K250,000. The company has never borrowed before, except for short term invoice discounting facilities which are usually paid every three months. The capital in the business was all provided by the prime mover of the company through the benefits he was paid by his previous employers. The business is currently slowly growing organically.
The directors are willing to give you a debenture and their personal guarantees for K300, 000 as security for the facility of K250, 000. The expected proceeds on the order stand at a K1.2million.

Required;
i)Analyse the business and give, with reasons, the response you would make to the company.
(25 marks)
(The financials are stated below)

Trade Mark Limited
Balance Sheet
As at:

31st December 2016
30th June 2017 (Draft)

K’000s
K’000

Fixed Assets

Leasehold improvements

1,690

Motor vehicles

10,162

13,612

Fixtures & fittings

7,558
19,410

16,182
31,484

Current Assets

Cash
57,804

418

Debtors
222,792

438,296

Stock
106,208
386,804

202,882
641,596

Current Liabilities

Factoring advances
40,228

231,570

Creditors
325,162

320,966

VAT
7,564

37,226

Director’s loans
5,000

5,000

Overdraft
–

Tax
6,296
384,250

6,296
601,058

Net current assets

2,554

40,538
Net assets

21,964

72,022

Financed by:

Share capital

5,000

5,000
Profit &loss account

16,964

67,022

21,964

72,002

Profit and Loss Summary

12 Months to
31st December 2016
6 Months to
30th June 2017 (Draft)

K
K
Sales
763,406
1,129,178
Gross profit
164,792
256,424
Purchases
598,614
872,754
Directors’ remuneration
25,800
17,000
Interest paid
7,375
8,266
Profit before tax
20,010
50,058