Financial Markets and Bank Management - Essay Example

We understand that you wish to expand your business operations and therefore, your fund requirement has increased. Our observations on your firm’s balance sheet are as per the following. The current ratio of the firm has declined in the year just completed though it still stays above 1.0; however, the quick ratio appears to be under strain. We notice that the acid-test ratio has gone down below 0.50 in the latest financial year. Net margin has also declined from 2.5 percent in year 2013 to 2.

1 percent in the latest fiscal. Moreover, the net interest cover of the firm has also declined from 3.0 times to 2.7 times that provides marginal safety net for the firm in the current sluggish business environment. The declining stock turnover (in days) year after year is a good sign. In fact, it also establishes the declining needs of the working capital for your business. We have worked out the working capital requirement for your firm based on the information provided by you. The increased working capital requirement for the projected sales of £1,550,000 is likely to be £167,000 (working in annexure A).

Considering the strength of your balance sheet and increased working capital requirement, our bank increases existing overdraft limit from £90,000 to £180,000 and that should be adequate to meet your requirements. Our bank is in receipt of your loan request to increase the overdraft facility to £10,000. We understand that you have to meet some essential expenses such as school fees for your son. Kindly find our detailed reply to your loan application in the following paragraphs. We extend overdraft facility to our valued customers essentially to meet some contingencies and sort out temporary cash flow issues when you fail to receive your dues in time.

Though you started with initial overdraft of £2,000 it has steadily increased and has reached to £3,600. We notice