Page 30 - CIMA May 18 - MCS Day 1 Suggested Solution

CIMA MAY 2018 – MANAGEMENT CASE STUDY

As with Menta, there is insufficient information to enable calculation of working capital ratios for
Dawlbus. This should not be a significant issue as Dawlbus is not a trading or manufacturing
enterprise, and nor does it generate a significant proportion of its revenue from making sales on
credit.

Long terms loans outstanding were reduced by C$67.7m during 2017, resulting in a reduction in
the gearing ratio from 26% in 2016 to 18.2% (Menta 15% in 2017). This partial repayment of long‐
term debt would appear to be voluntary and was probably achieved by having strong cash‐
generating activities in terms of fare‐paying customers and subsidies received as there was no
increase in Dawlbus’ share capital/share premium balance from 2016 to 2017.

Current liabilities fell by approximately 1.5%, although this was achieved by a reduction in trade
payables of C$13.7, whilst the tax liability increased by C$7.5m.

Dawlbus did not make any acquisitions during 2017 as the total for goodwill in its consolidated
statement of financial position remained unchanged from 2016 at C$157.1m. In common with
Menta, Dawlbus’ SOFP does not disclose any non‐controlling interest, so all subsidiaries must be
wholly‐owned.

If Menta did acquire Dawlbus, it would increase its market share of bus travel in Centralia. This
would enable Menta to take advantage of synergies by closing down services in locations in which
they both operate. It may also enable Menta to adopt an aggressive pricing strategy following the
elimination of a major competitor in locations throughout Centralia, which would boost revenue
and profitability.

74 KAPLAN PUBLISHING