Page 13 - OCS Workbook - Day 1 Suggested Solutions (May 2018)

SUGGESTED SOLUTIONS

Question Response

Why had turnover Reasons given in pre-seen:
increased in 2017? • Still recovering customers and sales lost between 2012 and 2015
(p3).
• Selling handbags at lower prices than between 2012 and 2015
(p3) thus boosting volume
• Introduction of new product ranges (p3) attracting new
customers
• 22% growth in sales in Asia (p10)
• Improved store design since working with USD (p10)
Other possible reasons
• Change in mix towards more expensive lines
• Price increases (unlikely given experience between 2012 and
2105)

Comment on the COS increased by more than revenue (8.4% v 7.9%), which is surprising as
increase in cost of sales the presence of fixed costs within COS normally results in COS changing
between 2016 and 17 by less than revenue.

Given COS is driven partly by volume, one explanation could be that
overall volume increased by more than revenue (7.9%), in which case
average price must have decreased.

Had the working capital Positives
position worsened or • Overall operating cycle has shortened
improved? Explain. • Inventory days down, so lower obsolescence risk.
• G$192k less money tied up in working capital overall

Negatives
• Big increase in receivables and receivables days, so higher credit
risk
• Inventory days figure seems very high – do we need over 8
months’ inventory?
• Payables days figure lower but also very high – do we risk
alienating key suppliers? Could be problematic if we decide to
switch to JiT, for example.
• Overall, an additionalL$2.3m tied up in working capital

Comment on No long term debt, so have the potential to borrow funds if needed for
Mansako’s gearing. investment.

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