Page 24 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – MANAGEMENT CASE STUDY

2018 and 2017. Crowncare is undoubtedly assisted in this by the nature of its operations –
patients pay either at the point of obtaining treatment or payments are made from National
Dental insurance policies. In either situation, payment will normally be received promptly, with
minimal risk of delayed or non‐payment to Crowncare. This is supported by the low level of trade
receivables in Crowncare’s financial statements, representing approximately 4.5% of revenue for
2018 and 2017. This is likely to comprise claims made under medical insurance policies or
payments made by personal credit cards, which have not yet cleared.

Using year‐end figures, (so that they will be comparable with those of Smilebrite), Crowncare had
a receivables’ collection period of 16 days for both 2018 and 2017. The inventory holding period
was 10 days for both years, and the trade payables payment period was 19 days for both years.
This demonstrates a stable and well‐organised business. Dentistry supplies can probably be
ordered with a short lead time, and probably need to be paid for within a relatively short credit
period.

Crowncare’s operating cycle remained constant at 7 days for both 2017 and 2018, indicating firm
control of operating activities throughout the period under review.

There are no long term loans outstanding, indicating that the business is entirely equity‐financed.
Note that the business model used for acquisition of new dental practices by Crowncare is to use
a share exchange, rather than a payment of cash. If required on a future occasion, Crowncare
would probably be able to raise loan finance, and introduce an element of gearing into its
financial structure, without significantly increasing the risk associated with such a development.

Conclusion
Overall, Crowncare seems to be performing well with reasonable growth in revenue and profits in
2018. Associated with this, overall performance ratios are stable compared to 2017 and on the
surface at least, performance appears strong.

The financial position of Crowncare is again stable compared to 2017 and also appears strong with
reasonable liquidity, given the basis of how Crowncare receives revenue and incurs operating
expenses.

The challenge for Crowncare in the future is likely to be in finding ways to maintain and improve
financial performance and position, rather than by acquisition alone.

74 KAPLAN PUBLISHING