The case: Printers Ltd.
Part A: (1500 Words)
Printers Ltd. is a private limited company owned by 3 young family shareholders,who are also active directors of the company.
The companyspecialises in high quality printing of reproductions of famous paintings and drawings and business has been thriving, such that expansion options are now being considered.
It owns its factory premises freehold, but has financed the purchase of the printing machineswith a long term bank loan at floating interest rates, repayable over 5 years, 2 years remaining.
The company has seen improving profitability with increasing turnover, profit margins and liquidity ratios, although a small overdraft is normal at times.
An opportunity has arisen to diversify into art book printing, which will require the purchase of new printing machinery for £2m and an additional investment in working capital of £0.5m.
These amounts will require additional finance for the company, as there is insufficient retained earnings represented by cash to make this investment.
At a recent meeting of the owners, the topic of this additional finance was discussed and various options considered.
Three clear principles emerged from this meeting: the owners were not in a position to invest further funds themselves, there was reluctance to significantly raise the gearing level and therefore the financial risk of the company, no loss of control of the existing owners would be considered.
Required:
As an independent advisor, preparea report to the shareholders of Printers Ltd.,briefly outlining the financing alternatives the company has forfinancing this expansion and bearing in mind the 3 desired principles mentioned above,recommend with reasons viable financing alternatives, together with any implications, that are open to the company.