Risk Management
“United Grain Growers Ltd (UGG)”

1. - UGC estimated that it would need C$150 million to carry out its strategic plans over the coming two years. Will its internal resources provide reliable funding for this program? How much external funding might it need?

After carefully reviewing the income statement, balances sheet and cash flow it seems that the company has a negative cash flow for 1998, so even before thinking about obtaining internal and external resources for long term investment, the company must assure resources for their own working capital.

This seems not logical or correct, because the secularization is meant for the company to raise cash by selling accounts receivables and reducing inventory, but for 1998 is not working due to the fact that is using more cash by increasing the working capital.

Therefore my answer would be that the company in order to raise the C$150 million to carry out its strategic plans over the coming two year would need to obtain a long term loan, possibly over 10 years and the longer the better because the new elevators are expected to last at least 50 years.

Also, in case that the company fix the problem with the secularization and their working capital, my answer would be to borrow only part of the difference between the C$150 million and the cash flow for the two years, but also not to issue any dividends for this period, actually, in real life no respectable bank would give a long term loan to the company without a covenant forbidding the issuing of dividends.

Finally, if the actual statements are correct, UGG would need to increase its short term debt or obtain cash by other means, perhaps from the stock market or the traditional method that is by negotiating an increase of the number of days in their accounts payables, reducing the inventory and decreasing the number of days in their