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In addition to the loan you provide an overdraft

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In addition to the loan, you provide an overdraft facility which you increased at the start of last year from $300,000 to $350,000, following periods when the previous limit was exceeded. Your regional office lending controller recently agreed a temporary increase in this limit to $600,000 pending the annual review which is now due. As security, you have a fixed charge over property and book debts and a floating charge over other assets. You also hold an unsupported unlimited guarantee from John. John now calls to see you bringing with him last year’s audited accounts (2012). Business is booming and he expects this state of affairs to continue as his major New Zealand retail customer has decided to refurbish its stores every three years, instead of every five as previously. He expects sales to more than double this year with further substantial increases in the next two years. He has recruited a young accountant whom he is going to appoint financial director of the company, and together they have drawn up a three-year plan. This requires the doubling in size of the company’s production facilities during the next six months with a further significant increase next year. An increased overdraft of $75,000 is needed immediately, increasing to $1,300,000 next year. He gives you three years’ projected balance sheets and profit and loss accounts, showing the financial implications of the plan.
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Ergonomics Ltd: Balance Sheets 2010 2011 2012 As at 31 December $ '000 $ '000 $ '000 Current Assets: Debtors 100 169 398 Raw Materials 46 77 179 Work-in-Progress 148 309 1096 294 555 1673 Current Liabilities: Hire Purchase 44 96 130 Creditors 274 370 1036 Bank Overdraft 69 173 166 Bank Loan 0 0 5 Tax 9 50 171 396 689 1508 Net Current Assets: -102 -134 165 Medium-Term Loan 0 0 -295 Fixed Assets: Freehold land & buildings 66 135 411 Plant & Machinery 166 283 374 232 418 785 Net Assets 130 284 655 Finance By: Ordinary Shares 3 3 3 Capital Reserve 0 69 0 Profit & Loss Account 127 212 652 130 284 655 Profit & Loss Account Summary 2010 2011 2012 12 Months to 31 December $ '000 $ '000 $ '000 Sales 872 1269 2414 Purchases 441 604 1438 Gross Profit 300 467 1055 Net Profit Before Tax 104 136 551
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Ratios & Other Information 2010 2011 2012 $ '000 $ '000 $ '000 Credit Ratio 1 : 0.74 1 : 0.81 1 : 1.1 Acid Test 1 : 0.25 1 : 0.25 1 : 0.26 Credit Given (Days) 34 39 30 Credit Taken (Days) 115 196 131 Stock Turnover 25 132 188 Gross Margin (%) 34.4 36.8 43.7 Net Margin (%) 11.9 10.8 22.8 Interest Cover (Times) 6.5 6.0 10.8 Net Gearing (%) 87 95 91 Net Working Assets to Sales (%) 2 15 26 Retained Profits to Sales (%) 7 7 18 Projected Figures Balance Sheets as at 31 December 2013 2014 2015 As at 31 December $ '000 $ '000 $ '000 Current Assets: Debtors 0 0 706 Raw Materials 920 1750 2250 Work-in-Progress 2000 3750 5500 2920 5500 8456 Current Liabilities: Hire Purchase 76 34 0 Creditors 1320 1922 2840 Bank Overdraft 640 1261 0 Bank Loan 7 9 11 Tax 514 1038 1373 2557 4264 4224 Net Current Assets: 363 1236 4232 Medium-Term Loan -288 -279 -268 Fixed Assets Freehold Land & Buildings 938 1372 1343 Plant & Machinery 597 1207 1040 1535 2579 2383 Net Assets 1610 3536 6347 Finance By: Ordinary Shares 3 3 3 Capital Reserve 0 0 0 Profit & Loss Account 1607 3533 6344 1610 3536 6347
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Profit & Loss Account Summary 2013 2014 2015 12 months to 31 December $ '000 $ '000 $ '000 Sales 6500 12400 17500 Purchases 2500 4930 7045 Gross Profit 2195 4123 5763 Net Profit Before Tax 1469 2964 4325 Projected Balance Sheet Ratios 2013 2014 2015 $ '000 $ '000 $ '000 Credit Ratio 1 : 1.14 1 : 1.29 1 : 2.00 Acid Test 1 : 0.36 1 : 0.41 1 : 0.70 Credit Given (Days) 37 39 42 Credit Taken (Days) 172 120 123 Stock Turnover 139 126 144 Gross Margin (%) 33.8 33.3 32.9
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  • Fall '19
  • Debt, Bill Ramsey

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