Company capacity to continue trading, Financial Management

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Company capacity to continue trading

Given the preceding discussion it is unlikely that the business can continue in its current form. The trading performance is clearly very strong when measured in terms of its sales capacity and growth. This point outs a good customer base and the ability to service customer needs. The markets the company serves propose a long term future for its product or service. It is probable that the company's cost base will be overwhelmed by interest charges which are resulting in reduced PBT/Sales ratios over the period in spite of significant sales growth. If that is the situation then it may well be that the underlying trading profitability is good. If it isn't found to be good after further investigation then additional action may need to be taken. For instance if low profitability is due to aggressive pricing then an investigation into alternative marketing strategies may be appropriate. Additionally given the significant growth it may now be timely to look at the customer base and withdraw service from those customers who are either unprofitable or otherwise difficult (late payers for example). Product mix might be gainfully assessed to focus on higher margin sales activities and to decrease effort on lower margin activities. A business plan recitation the customer base and the strategy for greater profitability will underpin any bid for a reorganisation of AIS Ltd's finances.

Bank support is critical to long term survival if the debt is in the form of bank related lending. Substitute sources of finance should also be considered particularly in the form of equity which is required to re-balance the business.


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