Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating in Malaysia. The company...

 

 

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Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating in Malaysia. The company is affected by the Covid-19 pandemic. Hence, the top management has called for ideas on potential strategies recommendation to overcome potential negative impact of the pandemic on profitability and solvency of the company. As one of the bright new management executives, you are eager to present your recommendation in the next coming online management meeting. To do that, you need to show some calculations, based on prior years' financial statements, that support your recommendations. You concentrated your study of financial statements on the company's statement of profit or loss and other comprehensive income. The statement of profit or loss and other comprehensive income for Covidabravo Sdn. Bhd. of selected prior years is presented below: Covidabravo Sdn. Bhd. Statement of Profit or Loss and Other Comprehensive Income Year Ended 31 December 2019 Sales** Cost of merchandise sold Gross profit Sales expense Administrative expense Total selling and administrative expense Interest expense Other income Income before income taxes Income tax expense Assets Current Assets: Cash and equivalents 2018 2017 RM (000) RM (000) RM (000) 32,376 30,601 27,799 17,405 16,534 15,353 14,971 14,067 3,278 7,191 10,469 Short-term investments Accounts receivable (net) Inventories 19 140 Prepaid expenses and other current assets Total current assets Property, plant and equipment Intangible assets (net) Total Assets 4,623 863 3.760 3,213 6,679 9,892 28 58 4,205 932 3,273 Net income ** Assume that all sales are on account. Below is the excerpt of Covidabravo Sdn. Bhd.'s statement of financial position's data. 2019 2018 RM (000) RM (000) 3,138 2,319 3,241 4,838 1,489 12,446 3,031 5,735 8,766 17,464 3,520 412 21,396 33 -103 3,544 851 2,693 3,852 2,072 3,358 4,337 1,968 18,174 3,011 412 21,597 The following is additional information (in thousands) related to the company: RM (000) 3,117 4,142 Accounts receivable at 31 December 2017 Merchandise inventories at 31 December 2017 Total assets at 31 December 2017 Accounts payable at 31 December 2017 Total current liabilities at 31 December 2017 Stockholders' equity at 31 December 2017 REQUIRED: (a) Determine the following measures for the fiscal years ended 31 December 2019 and 2018. Round ratios and percentages to one decimal place. (i) Accounts receivable turnover (ii) 18,594 2,131 6,332 12,000 Number of days' sales in receivables Inventory turnover (iii) (iv) Number of days' sales in inventory (v) Ratio of sales to asset (10 Marks) (b) What conclusion(s) can be drawn from each of the analysis done in part (a)? (5 Marks) (c) Based on your answer in part (b), recommend TWO (2) potential strategies that can be used to maintain or improve the efficiency of inventory, sales and accounts receivables management to minimise the impact of Covid-19 pandemic on its profitability and cash flows. (5 Marks) Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating in Malaysia. The company is affected by the Covid-19 pandemic. Hence, the top management has called for ideas on potential strategies recommendation to overcome potential negative impact of the pandemic on profitability and solvency of the company. As one of the bright new management executives, you are eager to present your recommendation in the next coming online management meeting. To do that, you need to show some calculations, based on prior years' financial statements, that support your recommendations. You concentrated your study of financial statements on the company's statement of profit or loss and other comprehensive income. The statement of profit or loss and other comprehensive income for Covidabravo Sdn. Bhd. of selected prior years is presented below: Covidabravo Sdn. Bhd. Statement of Profit or Loss and Other Comprehensive Income Year Ended 31 December 2019 Sales** Cost of merchandise sold Gross profit Sales expense Administrative expense Total selling and administrative expense Interest expense Other income Income before income taxes Income tax expense Assets Current Assets: Cash and equivalents 2018 2017 RM (000) RM (000) RM (000) 32,376 30,601 27,799 17,405 16,534 15,353 14,971 14,067 3,278 7,191 10,469 Short-term investments Accounts receivable (net) Inventories 19 140 Prepaid expenses and other current assets Total current assets Property, plant and equipment Intangible assets (net) Total Assets 4,623 863 3.760 3,213 6,679 9,892 28 58 4,205 932 3,273 Net income ** Assume that all sales are on account. Below is the excerpt of Covidabravo Sdn. Bhd.'s statement of financial position's data. 2019 2018 RM (000) RM (000) 3,138 2,319 3,241 4,838 1,489 12,446 3,031 5,735 8,766 17,464 3,520 412 21,396 33 -103 3,544 851 2,693 3,852 2,072 3,358 4,337 1,968 18,174 3,011 412 21,597 The following is additional information (in thousands) related to the company: RM (000) 3,117 4,142 Accounts receivable at 31 December 2017 Merchandise inventories at 31 December 2017 Total assets at 31 December 2017 Accounts payable at 31 December 2017 Total current liabilities at 31 December 2017 Stockholders' equity at 31 December 2017 REQUIRED: (a) Determine the following measures for the fiscal years ended 31 December 2019 and 2018. Round ratios and percentages to one decimal place. (i) Accounts receivable turnover (ii) 18,594 2,131 6,332 12,000 Number of days' sales in receivables Inventory turnover (iii) (iv) Number of days' sales in inventory (v) Ratio of sales to asset (10 Marks) (b) What conclusion(s) can be drawn from each of the analysis done in part (a)? (5 Marks) (c) Based on your answer in part (b), recommend TWO (2) potential strategies that can be used to maintain or improve the efficiency of inventory, sales and accounts receivables management to minimise the impact of Covid-19 pandemic on its profitability and cash flows. (5 Marks)

Answer rating: 100% (QA)

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