Page 14 - CIMA OCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – OPERATIONAL CASE STUDY

Question Response

Comment on Trigg • Debt increased by F$300k but overall gearing still low
Adventure’s financial • Possible concern is why the debt was raised – was it to finance
gearing. investment or simply to facilitate the payment of the F$360k
dividend? If the latter, then this is not a sensible approach to long
term debt management.

Comment on Trigg Positives
Adventure’s cash flow. • Have F$226k more cash compared to previous year
• Cash generated from operations of F$1,457k
• F$680k net investment in PPE
Negatives
• Additional F$475k tied up in working capital
• Is payment of F$360k sustainable going forwards?

Discuss whether the The key driver of the budget is the planned increase in revenue of 5.8%.
2019 budget is realistic. Given the budget has a sales mix of 64% domestic and 36% commercial,
compared to the current situation of 70:30 (p17), we can assume that
the bulk of the growth is expected to come from the domestic sector.

Arguments why the growth is reasonable
• You could argue that Trigg had a major shake-up in June 2018 - Tony
took over as MD and Sally joined as Sales Director. Since then Grace
has been appointed as a designer. 2019 will be the first full year
when their new drive and ideas will have impact, such as new
product ranges, etc.
• Sally’s experience could be instrumental in winning new commercial
clients.
• Growth opportunities due to FITKIDS initiative
Arguments why it isn’t
• We are told on p11 that complaints re installation have reduced
dramatically but not eliminated, so Trigg could still be in a position
where it needs to refresh its image in the minds of commercial
customers.

W2: Expected receivables days (page 17)

• Sales split 70% domestic 30% commercial

• Domestic: 50% website paid at time of purchase, of the rest (i.e. retailers) >50% five
largest 45 days and rest 30 days

• Commercial: either on installation or after 50 days if government
• Weighted average = 0.7[(0.5×0) + 0.5×(0.5x45 + 0.5×30)] + 0.3[50] = 28 days

56 KAPLAN PUBLISHING