Analyse the profitability of invested capital (assets) for each of the two companies in 2020 as compared to 2019. Based on your calculations, explain the main reason(s) for the change in the profitability for each company over the two years. Note: ensure that you analyse in this question, not just describe the ratio values. 

QUESTION 1: Calculate the Cash Conversion Cycle (CCC) for each of the two companies in 2019 and 2020. Using your answer, analyze the efficiency of each of the two companies in managing their working capital in 2020 as compared to 2019. Note: Ensure that you analyze this question, not just describe the CCC values. 

	AUSTAL 2019	AUSTAL 2020	SYNLAIT MILK 2019	SYNLAIT MILK 2020
INVENTORIES	167,042,000	143,799,000	157,765,336	250,310,351
COST OF GOODS SOLD	1,661,113,000	1,846,707,000	778,722,364	984,427,613
ACOGS	4,550,994.52	5,059,471.23	2,133,485.93	2,697,061.95
RECEIVABLES	225,268,000	144,217,000	59,271,700	58,592,269
SALES	1,851,021,000	2,086,001,000	980,289,979	1,209,835,532
AVG DAILY SALES	5,071,290.41	5,715,071.23	2,685,725.97	3,314,617.90
PAYABLES	202,308,000	156,910,000	206,737,486	221,863,965
INVENTORY DAYS	36.70450475	28.42174476	73.94721187	92.80852844
ACCOUNTS RECEIVABLE DAYS	44.42025239	25.23450612	22.06915399	17.67693014
ACCOUNTS PAYABLE DAYS	44.45358022	31.01312228	96.9012653	82.26135285
CCC	36.67117692	22.6431286	-0.88489944	28.22410573

Austral

• Holding less inventory in 2020 compared to 2019, therefore, decreasing the cash conversion cycle

• COGS have increased from $1,661,113,000 to $1,846,707,000 , however, the inventory has decreased from $167,042,000 to $143,799,000 meaning that they’ve been managing their inventory somewhat well enough to decrease their inventory days. In addition, increasing their productivity evident by the increase of COGS

• The payables have also decreased meaning that they have been able to pay off some of their creditors

• Austral has been able to receive their money from buyers evident in their receivable values

SYNLAIT MILK

• Synlait Milk has a negative CCC in 2019 meaning that the company received cash from its sales before it paid its suppliers for the products it sold.

• However, in 2020, while the Avg daily COGS increased from 157,765,336 in 2019, the inventories and accounts receivables increased as well. They weren’t able to manage their inventories as well which might have resulted in a higher CCC in 2019

• Accounts payable days reduced from 96.9 days in 2019 to 82.26 days in 2019 which might suggest it is not taking full advantage of opportunities to delay payment to suppliers.

QUESTION 2: Analyse the sources of finance for each of the two companies in 2020 as compared to 2019. Use two capital structure ratios to support your answer and provide an explanation regarding the changes in the composition of the sources of finance for each enterprise. Note: Ensure that you analyze this question, not just describe the ratio values. (2 marks) (ANSWERED)

QUESTION 3: Analyse the ability of management to manage their fixed assets and total assets for each of the two companies in 2020 as compared to 2019. Use two Asset Management efficiency ratios to support your answer and explain any change in each companies’ ability to use their assets to generate sales. Note: ensure that you analyse in this question, not just describe the ratio values. (2 marks)

QUESTION 4: Analyse the profitability of invested capital (assets) for each of the two companies in 2020 as compared to 2019. Based on your calculations, explain the main reason(s) for the change in the profitability for each company over the two years. Note: ensure that you analyse in this question, not just describe the ratio values. (3 marks)

QUESTION 5: Given your answers and analysis in Questions 1 to 4, what is your final recommendation to the CLO of Bastion Banking Corporation: an approval or denial of the loan to each and/or both firms? Discuss the basis for your recommendation. Ensure you base your recommendation only on the change in the ratios for the two stated financial years (i.e., 2019 and 2020). (4 marks)

Answer rating: 100% (QA)

Answer to Question 1 The Cash Conversion Cycle CCC measures the efficiency of a company in managing its working capital specifically the time it takes to convert inventory into cash For Austal the CCC ... View the full answer