QUESTION ONE

This question has two parts. Please read each part carefully and provide all your answers to both parts of the question.

PART -A

The shipping industry provides freight transport services through their fleet of seacraft, voyaging to domestic and international destinations. The industry is part of the shipping value chain, which includes suppliers as well as distributors of the main service provider, the shipping company. The chain is set up to cater to the needs of the ultimate commodity market around the world.

Victorian Shipping Corporation (VSC) is the designated second largest cargo carrier company in Australia. It operates both interstate and internationally. The company operates 300 cargo ships, has assets of $18.6 billion and employs 19,200 staff. VSC, is the dominant local cargo service with 42.5% market share. In Australia, the only other significant competitor is Shippers Ltd distant second with 57.5%.

Ships require fuel which is a major cost factor in their operations. Fuel can account for more than 60% of a shipping operating costs. Supplying VSC its fuel requirements are petroleum refiners and wholesalers delivering to ports where VSC ships are departed from.

The following figures were extracted from the annual reports of Victorian Shipping Corporation (Cargo carrier company)

	Figures in $M
Victorian Shipping Corporation (VSC)	Yr 2021	2020	2019
Revenue	16,057	16,200
Cost of Sales	8,897	7,859
Net Profit	853	1,029
Cash and cash equivalents	1,775	1,980
Receivables	784	795	689
Inventories (ships operating materials)	351	336	305
Other current assets	209	347
Total Current Assets	3,119	3,458
Payables	1,250	1,370	1,190
Revenue received in advance	3,685	3,525
Short-term borrowings	330	338
Other current liabilities	1,013	1,179
Total Current Liabilities	7,095	7,028
Ships operating materials used	3,436	3,346
Purchases	9,949	10,332

REQUIRED:

1. Explain the value chain of VSC and discuss how value chain analysis benefits organisations such as VSC.
2. Calculate the working capital ratios for the relevant Yr 2021 and 2020 of VSC and Average Age of Inventory (AAI), Average Collection Period (ACP), Average Payable Period (APP) and the company Cash Conversion Cycles (CCC). Show formulas used and workings.
3. Calculate funding required to support VSCs Cash Conversion Cycles (CCC), comments on company performance.

(Please refer to Appendix -1 for working capital formulas)

(4 + 7 + 4 = 15 marks)