Comment on the performance of the company.
Why has this profitable company had to borrow so much money from the bank?
What overdraft would Govan expect to have if he continues with “business as usual”? 4.
Should Govan take advantage of the 2½% settlement terms offered by his suppliers? Explain.
As Govan's financial adviser, would you encourage him to go ahead or reconsider his anticipated expansion and his plans for its financing? What should he do?
As his banker would you approve his loan request? If so, would you put any conditions on the loan?
(Optional extra question…) Estimate a selling price for the business.
GOVAN’S CATERING SUPPLIES
After a rapid growth in its business during recent years, at the start of 2012, Govan’s
Catering Supplies anticipated a further substantial increase in sales. Despite good profits, which were largely retained in the business, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from the
Capitec Bank to R1.73m in early 2012. The maximum loan that Capitec would make to any one borrower was R1.75m, and Govan’s had been able to stay within this limit only by relying very heavily on trade credit. Mr Govan Moodley, sole owner of Govan’s
Catering Supplies, was therefore actively looking elsewhere for a new banking relationship where he would be able to negotiate a larger loan.
Govan had recently been introduced by a personal friend to Mr George Davis, the account manager of a much larger bank, Investec Bank. The two men had tentatively discussed the possibility that Investec Bank might extend an overdraft facility to Govan up to a maximum amount of R3.25m. Subsequent to this discussion Mr. Davis had arranged for the credit department of Investec Bank to investigate Govan and his company. Govan’s Catering Supplies had been founded in 1994 as a partnership by Govan and