Page 18 - CIMA OCS August 2018 Day 2 Tasks

CIMA AUGUST 2018 – OPERATIONAL CASE STUDY

Impact on the finance function

I am concerned about the potential impact of this change in product base on the efficiency of the
finance function. I would appreciate your thoughts on the following in this respect:

• Firstly the likely impact of these new products on our finance function, recoverability risks
and brand.
• Secondly, any measures that we should consider to mitigate any additional recoverability
risks that might arise. Within this, could you recommend, with reasons, the most
important step we should take out of the options presented.

Impact on the operating cycle

I’m also very concerned with Thomas Fine Teas working capital balances, in particular
receivables days and payables days. Obviously the increase in the products offered will affect the
level of receivables, but what effect will this proposal have on the length of the operating cycle
as a whole?

More generally, I would also be interested in your opinion of whether Thomas Fine Teas is
applying the correct working capital policies in order to manage our operating cycle and the
liquidity of the business.

I have included a schedule detailing Thomas Fine Teas operating cycle for the last two years as
Reference Material 1.

Kind Regards
Christie Smith

TASK
Respond to Christie Smith’s Email. (Time allowed 55 Minutes)

REFERENCE MATERIAL 1:

Thomas Fine Teas’ Operating Cycle

2018 2017
Inventory days (using cost of sales) 31 days 31 days
Receivables days (using total sales) 103 days 102 days
Payables days (using cost of sales) 85 days 92 days
Length of operating cycle 49 days 44 days

40 KAPLAN PUBLISHING