Write a response to Madison to help her understand ATC's current performance based on specific evidence from

the case study information and the financial information contained in the Accounts Pack. You can ignore the

impacts of any foreign exchange or tax issues. In your response:

1. Analyse four (4) areas of ATC's working capital management, including overall working capital days, for the

period ended 30 June 2024. As part of your analysis, justify why the area is relevant to ATC.

(8 marks)

2. Analyse four (4) other key areas relating to financial performance, that will support Madison in managing and

monitoring ATC's performance, for the period ended 30 June 2024. As part of your analysis, justify why the

area is important for ATC.

2024 Chartered Accountants Australia and New Zealand ABN 50 084 642 571. All rights reserved.

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Business Performance

Assessment 1

Case study

Ananda Tropic Collections Pty Ltd

Ananda Tropic Collections Pty Ltd (ATC) is an Australian company that operates a fashion retail and wholesale business

based in Brisbane. You are a Chartered Accountant at a small accounting firm which recently took on ATC as a client.

ATC has been assigned to your client list, leaving you responsible for all its accounting and advice needs. ATC's year

end is 31 December, and all amounts are presented in Australian dollars.

Background

Madison Ramsey launched ATC in 2008, as she was inspired by the bohemian styles of the Portobello Road Markets in

London, where she had worked in advertising. She returned home to Australia via India and Southeast Asia, to

capitalise on the opportunity she had identified - to introduce stylish seasonal clothing suitable for warmer climates to

the Australian market. The ATC range encompasses cotton or cotton-blend outfits in a limited range of styles that are

simple, comfortable, and vibrant.

From Madison's travels and some subsequent research, she identified India as a leading fabric-sourcing destination for

ATC. The blend of traditional textile know-how and modern production capabilities available in India made it an ideal

place to source premium fabrics, with a skilled workforce and labour costs, at competitive prices.

Post-pandemic performance

ATC originally owned and operated a retail store in the shopping precinct of Stones Corner in Brisbane, and a

warehouse in a nearby industrial suburb. During the COVID-19 pandemic, ATC's retail sales immediately dropped due

to lockdowns and government restrictions. Within six weeks, ATC had pivoted to an online store using the Shopify ecommerce

platform, Glasslight inventory system and Xero accounting software. Through employing search engine

optimisation and online marketing channels, ATC drove the majority of its Australia-based customers to purchase

online, so there was no longer a need to maintain a physical retail store and it was subsequently sold.

Additionally, ATC has a small contingent of overseas customers who purchase online, many of whom either previously

bought ATC clothing while visiting Australia or were recommended the brand by friends or family members living in

Australia. For all customers, ATC ships the clothing, and payment (including shipping costs) is due at the time of

purchase except for wholesalers who are offered credit terms.

Through the creation of a separate wholesaler login function on its website, ATC has been able to expand its business

model to include selling to wholesalers, who purchase clothing in bulk and distribute it to retailers across Australia. ATC

offers wholesalers:

products at lower margins than those sold through its website or to overseas customers, and

30-day credit terms (while all other customers must pay at the time of purchase).

Despite ATC selling seasonal clothing, Madison has been happy to see her revenue relatively consistent throughout the

year.

2024 Chartered Accountants Australia and New Zealand ABN 50 084 642 571. All rights reserved.

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Funding

During the 2020 and 2021 financial years, ATC obtained government-supported COVID-19 grants and concessional

loans (which are provided on more favourable terms than the borrower could obtain in the open market). The

concessional loan balance is due for payment by the end of December 2027.

In 2021, to facilitate its expansion into wholesale, ATC entered into a loan agreement with second tier lender

ReadyFinance (a non-bank institution that doesn't hold a banking licence). The interest rate on this lending was

favourable; however, it is expected to increase soon. Consequently, Madison intends to eventually stop using this

facility.

ATC also has a long-term loan facility in place with its current bank, with a maximum borrowing of $150,000.

Historically, ATC has not used this facility due to the market interest rates being higher than it could access elsewhere.

Current operations

ATC employs three full-time staff:

Madison (founder and CEO)

Deirdre Ramsey, Marketing Manager and Madison's sister, and

Joshua Nielsen, Operations Manager.

ATC also employs a pool of casual staff who help pick and pack deliveries in the warehouse.

While Madison initially performed most business tasks, she now predominantly manages supplier relationships with

factories in India. She spends approximately half the year living in India, and the other half in Australia.

Madison's 17 years of experience in India has given her a deep understanding of the local marketplace and culture,

where she has developed productive sourcing and supply partnerships with factories in Mumbai, New Delhi, and Jaipur.

Madison can generally negotiate favourable credit terms of 60 days but recently some suppliers were reluctant to

negotiate, likely due to the current economic conditions and the associated cashflow issues the suppliers are facing.

Joshua uploads new items to the inventory system, manages ATC's bookkeeping tasks, and handles debt collection for

wholesalers. As the Shopify and Glasslight platforms operate independently and do not integrate with Xero, this

involves performing a large volume of manual data entry and reconciliations. Until these are completed, the website

cannot display accurate inventory information. Due to Joshua's high workload, this can sometimes take several days. If

customers return damaged or unwanted inventory, Joshua is responsible for updating inventory records in Glasslight

and entering the corresponding credits in Xero. He can monitor returns by running inventory defect reports, but his

workload often prevents him from conducting such checks regularly.

Joshua is also responsible for managing ATC's casual staff and employing them as needed. The casual staff unpack

stock, perform quality checks on products, identify when credits are required from suppliers for stock received damaged

or defective, and pack and send orders to customers. The staff are aware that the seasonal nature of ATC's inventory

means it needs to be moved quickly (average industry inventory days are 88), so are diligent about ensuring orders are

filled promptly.

Joshua and Deirdre are both very committed to ATC, and Madison is interested in rewarding them for their efforts more.

Challenges

In 2023, ATC experienced its first net loss since its launch. Madison was unaware of this until she received the annual

financial statements. Madison thinks the loss was due to marketing expense overruns that were not being effectively

managed and targeted. Madison hasn't heard of any further issues and is operating on a "no news is good news" basis

and believes expenses are back within normal parameters. This highlighted to Madison that she does not have an

effective performance evaluation system.

2024 Chartered Accountants Australia and New Zealand ABN 50 084 642 571. All rights reserved.

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Madison does not have a clear strategic direction for ATC, or any specific goals, KPIs or targets. Deirdre and Joshua

have helped facilitate and manage ATC's growth while providing Madison with the freedom to focus on developing

supplier relationships, but she is starting to wonder if being removed from the day-to-day operations - without adequate

systems in place allowing oversight of ATC's performance - may mean it is not performing to its full potential.

Madison is worried about ATC's liquidity as she knows it is a critical area for organisational success. However, she

lacks the evidence to determine if her concern is valid. She would like to implement more efficient systems to monitor

working capital.

Your involvement with ATC

Madison has approached you to help her gain a better understanding of ATC's financial situation and provided you with

an accounts pack containing ATC's financial results for year end 31 December from 2020 until 2023, and interim results

and budget for the six months to 30 June 2024.

Part A

Required

Write a response to Madison to help her understand ATC's current performance based on specific evidence from

the case study information and the financial information contained in the Accounts Pack. You can ignore the

impacts of any foreign exchange or tax issues. In your response:

1. Analyse four (4) areas of ATC's working capital management, including overall working capital days, for the

period ended 30 June 2024. As part of your analysis, justify why the area is relevant to ATC.

(8 marks)

2. Analyse four (4) other key areas relating to financial performance, that will support Madison in managing and

monitoring ATC's performance, for the period ended 30 June 2024. As part of your analysis, justify why the

area is important for ATC.

(8 marks)

Part B

Strategic planning

Madison, Deirdre and Joshua recently attended an extensive strategic planning retreat where they drafted a vision,

mission and drivers for future performance:

Vision To be the most sought-after supplier for vibrant, comfortable and stylish clothing in warm

climates.

Mission Commitment to providing high-quality cotton or cotton-blend outfits that embody simplicity and

comfort.

Drivers of

future success

Consistently exceeding customer expectations in all aspects of the business.

Revenue growth through targeted marketing and innovations in inventory.

Reduction in operational costs through process optimisation.

Maintaining optimal stock levels to meet customer demand and minimise excess inventory.

Enhancing cash flow efficiency through effective working capital management.

2024 Chartered Accountants Australia and New Zealand ABN 50 084 642 571. All rights reserved.

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Key performance indicators (KPIs)

Madison would like to implement KPIs to help translate organisational objectives into quantifiable performance

measures for ATC employees. Madison has drafted the following KPIs for Joshua, who has agreed with her decision to

measure the effectiveness of his work through KPIs:

i. All inventory credits processed within two business days of receiving the weekly defect report.

ii. Inventory accuracy rate of at least 95% when reconciled to physical inventory.

iii. Marketing expenditure per $ of sales revenue less than 15% per quarter.

iv. Trade income increasing 2% per quarter.

Reward-based remuneration

In addition to using KPIs, Madison wants to trial a reward-based remuneration system that would pay Joshua a bonus

for achieving targets. If successful, a similar system will be implemented for Deidre. They agree to select one KPI on

which he would be paid a bonus.

Currently, ATC only has a 2% conversion rate for customers currently visiting ATC's website using Shopify's ecommerce

platform. This means that, for every 100 visitors to the platform, only 2 people make a purchase. After some

negotiation, they determine the following KPI as an appropriate measure on which the bonus will be paid:

v. conversion rate (percentage of website visitors who make a purchase) to increase to 4% by end of

September 2024.

Required

Write an email response to Madison addressing the following:

1. Evaluate the appropriateness of the four (4) key performance indicators (KPIs) (i) - (iv) drafted for Joshua.

(4 marks)

2. Critique the proposed reward-based remuneration system for Joshua based on the stated KPI (v).

(4 marks)

Part C

Required

1. Develop a one-page dashboard with six (6) elements (a visualisation used within your dashboard, such as a

graph) to help Madison to monitor ATC's performance and to support future decision making, based on the

case study and the financial information in the Accounts Pack.

Note: A screenshot of this dashboard is to be included in your response. The words in your screenshot do not

count towards the assessment word limit. (8 marks)

2. Write a new email to Madison, justifying why the elements you have chosen are included in the dashboard

created. (4 marks)

2024 Chartered Accountants Australia and New Zealand ABN 50 084 642 571. All rights reserved.

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Format and style of Parts A, B and C

Required

Prepare your response using an appropriate style and tone for the intended audience, with correct grammar and

spelling. (4 marks)