Question
J-Born Berhad has an annual sale of RM25 million and due to pandemic Covid 19, its expected that the sales for the next year will
J-Born Berhad has an annual sale of RM25 million and due to pandemic Covid 19, its expected that the sales for the next year will reduce by 20%. Its cost of goods sold (COGS) is 60% of its sales. Currently its inventory conversion period (ICP) is 122 days, its average collection period (ACP) is 60 days and its accounts payable is 15% from its sales. The firm is trying to restrict its credit policy and increase it sales. The firm will give incentives to its staffs if they can improve the firm financials. The top management expected that the inventory will reduce by 15%, the accounts receivable will reduce by 25% and its accounts payable will increase by 20%. (Hint: can use round off number)
Required: a. What is the current cash conversion cycle (CCC)? (6 marks) b. What is the new CCC and the net change? (6 marks) c. Advise to the top management the action required to improve on the firm financial. (4 marks) d. Is the firm credit policy improve between these two years? What is the effect if the firm does not concern on this problem? (4 marks)
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