Page 13 - CIMA OCS Workbook February 2019 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

Question Response

Did Trigg Adventure Positives
perform well in 2018? • None really!
• Have F$226k more cash compared to previous year despite paying a
dividend of F$360k
Negatives
• Fall in revenue of 4% compared to industry average growth rates of
Domestic 1.7% pa, Commercial 7.4% pa
• Fall in gross profit of 7%
• Slight fall in GPM from 15.4% to 15.0%
• Fall in operating profit of 15%
• Fall in OPM from 8.8% to 7.8%
• Operating cycle has worsened from 71 to 82 days

Why had turnover Not told for certain but probably a mixture of the following:
decreased in 2018? • Domestic market is mature / saturated, so likely to be competitive
pressure to drop prices
• Commercial sales may have been dented by previous problems with
installation such as missed start dates, errors in installation and
criminal record disclosure. (N.B. installation was only brought in-
house in June 18 – see p11)
• Does the product range need refreshing / expanding
• Problems with the website?

Comment on the • Cost of sales – we don’t know how much of the 4.2% fall in revenue
increase in costs is due to price, volume or mix but it is likely that some of this is due
between 2017 and 18 to a fall in volume. This could explain the 3.7% drop in cost of sales
as a significant element of this cost is variable in nature.
• Selling and distribution costs – some of these with be variable in
nature, so it is disappointing that the cost has risen by nearly 8%
despite a (probable) fall in sales volume
• Admin expenses – these will be mainly fixed in nature. The rise of
1.7% is not very significant and could simply be due to inflation.

Had the working capital Positives
position worsened or • Have F$226k more cash compared to previous year
improved? Explain. Negatives
• Operating cycle has worsened from 71 to 82 days
• Additional F$475k tied up in working capital
• Inventory days have increased to 95 days. We are told that the
policy for timber is 4 weeks, so have to assume that this relates to
finished goods. The seasonal trade aspect means that we will be
building up stock in advance of the busy summer season, but this
seems excessive.
• Receivables days have increased to 24 days but this figure still seems
reasonable. [Note: if you use the various credit terms and sales mix
figures given on page 17, then you end up with a weighted average
expected collection period of around 28 days – see W2 below]

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