Page 13 - CIMA MCS Workbook August 2018 - Day 1 Suggested Solutions
P. 13

SUGGESTED SOLUTIONS




                  Question                 Response

                  Did GymFiT perform      Positives
                  well in 2017?            •   Overall profit for the year up 29% from C$4.9m to C$6.4m
                                           •   Revenue up 24%
                                           •   Operating profit up 31%
                                           •   Operating margins up from 11.1% to 11.7%
                                           •   Significant investment in new gyms and equipment
                                          Negatives
                                           •   Many costs went up by more than revenue
                                           •   Significant drop in cash balances
                                           •   Significant increase in long term borrowing
                                           •   Significant increase in both receivables and payables


                  Why had turnover         •   Total number of gyms went up 44% from 71 to 102
                  increased in 2017?       •   Average number of members went up 23% from 344k to 423k
                                           •   Average revenue per member went up 1% from $171 to $173
                                           •   This will be the result of a strong member proposition, a
                                               commitment to opening new gyms and successful advertising
                                           •   Note - the average membership per gym fell from4,846 to 4,143

                  Comment on the          Most of the costs have a significant fixed element, so one would expect
                  increase in costs       the increase in costs to be lower than the increase in revenue. However,
                  between 2016 and 17     this was not the case:
                                           •   Gym operating costs increased 24%
                                           •   Lease costs increased 28%
                                           •   Staff costs increased 33%
                                          This either indicates that new gyms are becoming increasingly expensive
                                          to open and operate, or that GymFiT has costs control problems, in
                                          direct contrast to their stated intent of cost cutting in their strategy.

                  Had the working capital   Worsened
                  position worsened or     •   Cash fallen by C$3.5m
                  improved? Explain.       •   Receivables increased by C$2.6m
                                           •   Receivables days increased from 29 to 36 days

                  Comment on GymFiT’s     Increased significantly
                  financial gearing.       •   Long term borrowings up by C$23.7m
                                           •   This means higher gearing risk for shareholders

                  Comment on GymFiT’s     Positives
                  cash flow.               •   Cash generated by operations increased to over C$26.4m
                                           •   Able to invest C$49.3m in new tangible assets
                                           •   Able to pay C$1m dividend, a significant increase on 2016
                                          Negatives
                                           •   Net cash outflow - speant C$3.5m more cash than raised/generated
                                           •   Had to increase debt and reduce cash balances to finance growth –
                                               is this sustainable?





                  KAPLAN PUBLISHING                                                                    55
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