Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating

in Malaysia. The company is affected by the Covid-19 pandemic. Hence, the top

management has called for ideas on potential strategies recommendation to overcome

potential negative impact of the pandemic on profitability and solvency of the company.

As one of the bright new management executives, you are eager to present your

recommendation in the next coming online management meeting. To do that, you need to

show some calculations, based on prior years financial statements, that support your

recommendations. You concentrated your study of financial statements on the companys

statement of profit or loss and other comprehensive income.

The statement of profit or loss and other comprehensive income for Covidabravo Sdn. Bhd.

of selected prior years is presented below:

Covidabravo Sdn. Bhd.

Statement of Profit or Loss and Other Comprehensive Income

Year Ended 31 December

2019 2018 2017

RM (000) RM (000) RM (000)

Sales** 32,376 30,601 27,799

Cost of merchandise sold 17,405 16,534 15,353

Gross profit 14,971 14,067 12,446

Sales expense 3,278 3,213 3,031

Administrative expense 7,191 6,679 5,735

Total selling and administrative expense 10,469 9,892 8,766

Interest expense 19 28 33

Other income 140 58 -103

Income before income taxes 4,623 4,205 3,544

Income tax expense 863 932 851

Net income 3,760 3,273 2,693

**Assume that all sales are on account.

Below is the excerpt of Covidabravo Sdn. Bhd.s statement of financial positions data.

2019 2018

Assets RM (000) RM (000)

Current Assets:

Cash and equivalents 3,138 3,852

Short-term investments 2,319 2,072

Accounts receivable (net) 3,241 3,358

Inventories 4,838 4,337

Prepaid expenses and other current assets 1,489 1,968

Total current assets 17,464 18,174

Property, plant and equipment 3,520 3,011

Intangible assets (net) 412 412

Total Assets 21,396 21,597BKAL1013 Business Accounting

7

The following is additional information (in thousands) related to the company:

RM (000)

Accounts receivable at 31 December 2017 3,117

Merchandise inventories at 31 December 2017 4,142

Total assets at 31 December 2017 18,594

Accounts payable at 31 December 2017 2,131

Total current liabilities at 31 December 2017 6,332

Stockholders equity at 31 December 2017 12,000

REQUIRED:

(a) Determine the following measures for the fiscal years ended 31 December 2019 and

2018. Round ratios and percentages to one decimal place.

(i) Accounts receivable turnover

(ii) Number of days' sales in receivables

(iii) Inventory turnover

(iv) Number of days' sales in inventory

(v) Ratio of sales to asset

(10 Marks)

(b) What conclusion(s) can be drawn from each of the analysis done in part (a)?

(5 Marks)

(c) Based on your answer in part (b), recommend TWO (2) potential strategies that can

be used to maintain or improve the efficiency of inventory, sales and accounts

receivables management to minimise the impact of Covid-19 pandemic on its

profitability and cash flows.

(5 Marks)