- 30 Marks
CML – APRIL 2024 – LEVEL 3 – Q1 – BA Brazil Nuts Ltd Lending Proposition
Critically examine a request from BA Brazil Nuts Ltd for an overdraft increase to GHC10 million and a USD 500,000 term loan for new equipment, considering their financials, operations, and recent challenges like a fire outbreak.
Question
Your valued customers of twenty years, BA Brazil Nuts Ltd was established twenty-six years ago by Herbert Obeng, aged 62 and his wife Martha Obeng, aged 58, both graduates in Agricultural Engineering from the University of Science, Industry and Technology. They also have MBA certificates in Marketing. Prior to this, they both worked with the Gold Coast Food Production and Distribution Service, a State Corporation engaged in the cultivation, purchase and distribution of food supplies. Herbert serves as both Board Chairman and CEO of the company. He is also in charge of Farming Operations. The Farm Managers at the company’s farms report directly to Herbert. Martha serves as the CFO and Executive in charge of Marketing. She is supported by an Accounts Clerk, Jones Pino, aged 25 who has just completed his professional examination in Accounting. ICA (Ghana). The company also has a pool of skilled workers poached from other reputable industrial establishments.
The company is located at Ekumfi Swedru in the Central Region of the country and boasts of a state of the art Brazil nut production plant and a five storey office building. The company has two articulator trucks which are used in the carting of the Brazil nuts to the ports for export. The company is engaged in the production, roasting, packing and export of processed Brazil nuts primarily to the EU and Great Britain which take 60% of its products. The rest is sold locally (20%) and to other parts of the world (20%) including Australia and the US.
The company has operated an impressive account over the years until a year ago when you saw a sharp dip in the company’s turnover. In your interaction with Herbert, you learnt that there had been a fire outbreak which affected a significant part of the company’s farm holdings in the Bono Region of the country. He had to replenish his stock of Brazil nuts at a higher cost from his colleagues who also have farms in this part of the country. Your latest investigations show that the company has replanted the burnt area with Brazil nut seedlings.
In one of your visits, it came to your attention that Herbert was building a new factory at Winneba about eighty (80) kilometers away. When you queried him, he told you he was anticipating expanding his market in US and Australia.
The company’s Overdraft Facility of GHC 5,000,000.00 is showing a hard core at around GHC 3,000,000.00. The company is requesting for:
- An increase in the Overdraft Facility to GHC10 million in support of Working Capital.
- A Term Loan of USD 500,000 for the purchase of new Brazil Nut Roasting and Packaging Plant for the new factory. GHS/USD = GHS 13.5/USD1
Critically examine this proposition. [30 MARKS] BA Brazil Nuts Ltd. Profit and Loss Extracts for the year ending 31 Dec
| 2021 | 2022 | 2023 |
|---|---|---|
| GHC | GHC | GHC |
| 5,750,000 | 6,900,000 | 7,690,000 |
| 472,610 | 534,100 | 758,420 |
| 3,150,000 | 4,142,000 | 4,605,800 |
| 3,622,610 | 4,676,100 | 5,364,220 |
| 534,100 | 758,420 | 985,400 |
| 3,088,510 | 3,917,680 | 4,378,820 |
| 2,661,490 | 2,982,320 | 3,311,180 |
| 690,000 | 779,700 | 991,580 |
| 405,000 | 417,400 | 777,400 |
| 1,566,490 | 1,785,220 | 1,542,200 |
| 439,600 | 574,000 | 684,500 |
| 1,126,890 | 1,211,220 | 857,700 |
| 281,723 | 302,805 | 214,425 |
| 845,167 | 908,415 | 643,275 |
BA Brazil Nuts Ltd. Balance Sheet as at 31 Dec
Ratios 2021 2022 2023 Sales Growth
20.00%
11.45%
Receivable Days
98
112
141
Payable Days
90
75
78
Inventory Turnover Days
63
71
82
Gross Margin
46%
43%
43%
Overhead %
12%
11%
13%
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