Professional Documents
Culture Documents
You are employed in the small business section of a medium-sized bank. Some time ago the bank
provided a local manufacturing company, F, with an overdraft facility of $3,000,000. This limit was
reached on 30 September 20X4 but was increased then to $5,000,000.
Your section head has just received the half-yearly financial statements of F for the period to 30
September 20X5. Having read these statements, your section head is extremely concerned as to the
performance of the company over the last year and is considering recommending the termination of the
overdraft facility. Before making any further decision, your section head wishes to have a second opinion.
Accordingly, he leaves a file of information concerning F on your desk and requires a report
recommending the best course of action. Information contained in the file:
Item 1: Income statements:
Six months to
Six months to
30 September 20X5
31 March 20X5
$000
$000
Sales
Cost of sales
10,000
-5,000
11,000
-5,500
Gross profit
Other operating expenses
5,000
-5,000
5,500
-4,500
Operating profit
Interest payable
0
-1,000
1,000
-900
-1,000
0
100
-
-1,000
100
20X5
$000
$000
$000
Non-current assets:
property
plant
5,000
3,500
8,500
5,200
3,000
Current assets:
inventories
receivables
cash in hand
3,000
5,000
80
2,600
4,600
80
8,080
7,280
2,600
5,000
2,600
3,000
7,600
5,600
Current liabilities:
trade payables
bank overdraft
8,200
NCAs
12% loan notes
(secured against the property)
480
1,680
-4,800
-4,800
4,180
5,080
4,000
180
4,000
1,080
4,180
5,080
Item 3: Estimated realizable values of the assets of F at 30 September 20X5, based on a forced sale
scenario:
$000
Property
Plant
Inventories
Receivables
5,000
1,000
800
2,500
9,300
Required:
a. Using the items contained in the file, write a report to your section head which contains an
appraisal of the performance and financial position of F and considers the implications for the
bank of calling in the overdraft.
b. Produce a short appendix to the report you have compiled in (a). This should summarize the
limitations of the information available to you as a basis for making a recommendation as to the
wisdom or otherwise of calling in the overdraft.