FINANCIAL DECISION MAKING

Case Study 2 Malcolm Scott James (MSJ) is a large exporter of high-quality soft fruit preserves (mainly raspberry, blackberry and strawberry) based in Scotland. All of its preseives are sold on credit and it makes no sales in the UK. MSJ purchases the soft fruit from more than 150 different small Scottish soft fruit growers. The company purchases all of the other necessary ingredients for its preserves from various suppliers throughout Scotland. The soft fruit and other ingredients are processed and packaged at the company's factory and stored in its distribution warehouse ready for export Historically, MSJ has sold all of its preserves to the European market through RapideJams, a French importer of soft fruit preserves. RapideJams then resells the imported preserves to several very large retailers in France, Germany and Italy. The following information has been extracted from the financial statements of MSJ and RapideJams. MSJ's figures are stated in 000 whereas RapideJams's figures are stated in '000: MST ,'000 RapideJams '000 Income statement: Revenue Cost of sales 22,511 15,555 357,112 198,888 Statement of financial position Inventory 3,111 25,004 Trade receivables 4,537 21,456 Trade payables 765 33,789 The average working capital cycles for similar companies to MSJ and RapideJams are 75 days and 30 days respectively. Required: 1. Calculate relevant working capital ratios to determine the working capital cycle of both MSJ and RapideJams. (Show clearly all workings.) (3 marks) 2. On the basis of your calculations in Requirement 1, evaluate the performance of both companies in managing their respective working capital cycles, stating clearly which company demonstrates poorer working capital cycle management. (11 marks - maximum word count 450 words) Recommend actions that the poorer company could take to improve its working capital cycle. (6 marks maximum word count 250 words) 3. Case Study 2 Malcolm Scott James (MSJ) is a large exporter of high-quality soft fruit preserves (mainly raspberry, blackberry and strawberry) based in Scotland. All of its preseives are sold on credit and it makes no sales in the UK. MSJ purchases the soft fruit from more than 150 different small Scottish soft fruit growers. The company purchases all of the other necessary ingredients for its preserves from various suppliers throughout Scotland. The soft fruit and other ingredients are processed and packaged at the company's factory and stored in its distribution warehouse ready for export Historically, MSJ has sold all of its preserves to the European market through RapideJams, a French importer of soft fruit preserves. RapideJams then resells the imported preserves to several very large retailers in France, Germany and Italy. The following information has been extracted from the financial statements of MSJ and RapideJams. MSJ's figures are stated in 000 whereas RapideJams's figures are stated in '000: MST ,'000 RapideJams '000 Income statement: Revenue Cost of sales 22,511 15,555 357,112 198,888 Statement of financial position Inventory 3,111 25,004 Trade receivables 4,537 21,456 Trade payables 765 33,789 The average working capital cycles for similar companies to MSJ and RapideJams are 75 days and 30 days respectively. Required: 1. Calculate relevant working capital ratios to determine the working capital cycle of both MSJ and RapideJams. (Show clearly all workings.) (3 marks) 2. On the basis of your calculations in Requirement 1, evaluate the performance of both companies in managing their respective working capital cycles, stating clearly which company demonstrates poorer working capital cycle management. (11 marks - maximum word count 450 words) Recommend actions that the poorer company could take to improve its working capital cycle. (6 marks maximum word count 250 words) 3