Question 2

1. The table below presents the average settlement period for accounts receivable for William Muffet Ltd for the years 2017 to 2019. The ratios showed that the customers have been taking more time to pay their accounts, compared to the permitted length of credit of not more than 18 days.

	2017	2018	2019
Average settlement period for accounts receivable	21.9	29.7	34.8

[TASK] As a credit manager for William Muffet Ltd, suggest three actions to speed up the collection of accounts receivable. Explain in detail how these actions can improve the collections of accounts receivable.

[9 marks]

2. The table presents the ratios for Pristine Berhad for the years 2018 and 2019.

	2018	2019
Gross profit margin	41.8%	49.8%
Profit margin	23.5%	25%
Asset turnover	0.9	0.9

[TASK] Using the above ratios, comment on the profitability of Pristine Berhad for the financial years 2018 and 2019.

[8 marks]

3. In 2019, an ambitiously growing company, Windsound Ltd implemented its expansion strategy to market its high-quality wireless earbuds in all major countries in Asia. To ensure that it produces enough quantity of earbuds, Windsound has spent a considerable amount of money to build two new factories and establish a seamless distribution system. In 2019, Windsound successfully sold 15-year bonds to fund its expansion plan.

[TASK] Describe how the expansion activities of Windsound would have affected the following items, in 2019:

1. Net cash flows from investing activities
2. Net cash flows from financing activities
3. Gearing ratios
4. Profits of the company

[8 marks]

[Total: 25 marks]