Page 28 - CIMA MCS Workbook November 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – MANAGEMENT CASE STUDY

Based upon analysts’ reports, Grapple was the only one of the five principal players in the market
to increase its market share (6% to 9%) between 2017 and 2018, with TigerFizz suffering a 2%
reduction during the same period. Other entities’ market share remained reasonably stable.

Limitations to competitor analysis
1 ‐ different accounting periods, even though all appear to be for a 12‐month reporting period
2 ‐ each entity may apply different accounting policies for e.g. depreciation, cost or valuation basis
for PPE
3 ‐ financial statements may be for a group or individual entity
3 ‐ have assets used in the business been purchased, or subject to finance or operating leases?
4 ‐ if entity is listed, it may be subject to pressure from institutional investors to provide adequate
returns in the form of dividends and capital growth on shares, which may not be a such an
important factor with family‐owned businesses. There will also be corporate governance and
other compliance issues to deal with.
5 ‐ employee policy ‐ Grapple is well‐known for its supportive and considerate policies towards its
employees ‐ ther entities may not be so paternalistic which may reduce their staff costs

Conclusion

Overall, Grapple has performed well in a mature and competitive market. with significant revenue
growth over the period reviewed. On the surface at least, performance appears strong, but the
reasons for the increase in the average collection time from trade receivables and payment time
to trade payables perhaps warrant further attention. This may be an indication of overtrading.

The financial position of Grapple is again stable compared to 2017 and also appears strong with
good liquidity with only a modest, although increased, level of debt.

The challenge for Grapple in the future is likely to be in finding ways to maintain and improve
these ratios against a background of increasing costs and strong competition in the industry. Also,
if Grapple was to consider further expansion, either organically or by acquisition, it may need to
seek sources of external finance.

78 KAPLAN PUBLISHING