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Uganda Air Cargo wants to raise $20 million in order to expand its business and wishes to evaluate the possibility of an issue of 8% loan notes
Uganda Air Cargo wants to raise $20 million in order to expand its business and wishes to evaluate the possibility of an issue of 8% loan notes. Extracts from the financial statements of Uganda Air Cargo are as follows:
| $M | ||
|---|---|---|
| Income | 140 | |
| Cost of Sales and Other Expenses | 112 | |
| Profit before Interest and Tax | 28 | |
| Finance Charges (interest) | 2.8 | |
| Profit before tax | 25.2 | |
| Taxation | 7.6 | |
| Profit after Tax | 17.6 | |
| $M | $M | |
| Equity Finance: Ordinary Shares ($1 nominal) | 25 | |
| Reserves | 118.5 | |
| Non-Current liabilities | 36 | |
| Current liabilities | 38.3 | |
| Total equity and liabilities | 217.8 |
Industry Average values of ratios in the sector to which Uganda Air Cargo belongs:
| Debt/Equity Ratio(book value basis) | 30% |
|---|---|
| Interest Cover | 10 times |
| Return on Equity | 15% |
Suggest other non-financial factors that should be considered in assessing the eligibility of Uganda Air Cargo to access the desired loan.
Expert Solution
Apart from the financial analysis, lenders could evaluate a business via other non-financial factors. In this case, the Uganda Air Cargo can be assessed by following non-financial factors:
- Business potential growth: Potential growth in revenue could be captured by the potential demand for services of this business. It helps to recognize whether the business can maintain its cash flows for debt payments in the future, which will be a conservative factor for lenders.
- Credibility of the firm in the industry: This concern helps the lenders or bond investors to generalize about the potential of collection loss on interest payments and principal.
- Background of management team: This will support the sustainable growth in the long-term. If the management team is not well-trained, the firm cannot maintain its growth and cash flows to repay the borrowings.
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