QUESTION 1) Calculate the Cash Conversion Cycle (CCC) for each of the two companies in 2019 and 2020. Using your answer, analyse the efficiency of each of the two companies in managing their working capital in 2020 as compared to 2019. Note: ensure that you analyse in this question, not just describe the CCC values.( 300 words) AUSTAL LIMITED: Austal held less inventory in 2020 compared to 2019, therefore, decreasing the cash conversion cycle. Their cost of goods sold (COGS) increased from $1,661,113,000 to $1,846,707,000, however, their inventory decreased from $167,042,000 to $143,799,000. This demonstrates that theu have managed their inventory well enough to decrease their inventory days. Austals increase in COGS is In addition, increasing their productivity is evident by the increase of COGS. The payables have also decreased meaning that they have been able to pay off some of their creditors (Bakry, 2020). Austal has been able to receive their money from buyers evident in their receivable values. SYNLAIT MILK: Synlait Milk has a negative CCC in 2019 meaning that the company received cash from its sales before it paid its suppliers for the products it sold. However, in 2020, while the Avg daily COGS increased from 157,765,336 in 2019, the inventories and accounts receivables increased as well. They werent able to manage their inventories as well which might have resulted in a higher CCC in 2019. Accounts payable days reduced from 96.9 days in 2019 to 82.26 days in 2019 which might suggest it is not taking full advantage of opportunities to delay payment to suppliers. QUESTION 2) Analyse the sources of finance for each of the two companies in 2020 as compared to 2019. Use two capital structure ratios to support your answer and provide an explanation regarding the changes in the composition of the sources of finance for each enterprise. Note: ensure that you analyse in this question, not just describe the ratio values.( 200 words) AUSTAL: Austal financed 52.48% of its assets with debt, in 2019. In 2020, they were able to finance 45.27%, meaning they used less debt than the previous year. Since theyve reduced the use of debt this could mean that they have reduced their tax advantages and increased the expenses of focusing on equity. Reducing the use of debt allowed ASB to attain more current assets to liquidate which increased the coverage of interest expenses. In 2019, Austals Interest expense was $8,284,000, compared to its EBIT of $9,399,500. This results in an interest coverage ratio of 11.35. This means Austal could have paid its interest expenses 11.35 times in 2019. Austals interest coverage ratio increased from 11.35 to 15.77, meaning it paid its interest expenses 15.77 times in 2020. The increase in interest coverage ratio can be reasoned with its increase in EBIT from $93,995,000 in 2019 to $130,396,000 in 2020. They also used less debt in 2020, they could have increased their current assets such as cash, in order to pay more interest expenses. SYNLAIT MILK: SM1 has focused more on debt financing, taking a more aggressive capital structure. Debt is a way to raise money and unlike equity, you avoid the tax expense thus one of the reasons why the interest coverage has nearly halved. Evidently, the current assets of cash had decreased but current assets and non-current asset investments have increased dramatically, which is one of the contributing factors to the increase of the debt ratio and the decrease of the interest coverage ratio. Long-term debt had doubled from $238,761,603 to $410,325,218 which is significant evidence that they have taken this aggressive approach that would have contributed to the capital structure. QUESTION 3) Analyse the ability of management to manage their fixed assets and total assets for each of the two companies in 2020 as compared to 2019. Use two Asset Management efficiency ratios to support your answer and explain any change in each companies ability to use their assets to generate sales. Note: ensure that you analyse in this question, not just describe the ratio values. ( 200 words) Asset management efficiency ratios measure a firms ability of management Austal generated $1.52 in sales per dollar of assets in 2020. They have increased from $1.39 in sales per dollar of assets in 2019. This means they are using the assets more efficiently to generate sales. Austal also improved its efficient use of its investment in fixed assets (specifically, net property, plant, and equipment). They went from $1.39 in sales per dollar of fixed assets to $1.52 in sales per dollar of fixed assets. Synlaits efficiency to use its total assets to generate sales decreased from 2019 (0.89) to 2020 (0.87). This means it went from generating $0.89 in sales per dollar of total assets to $0.87. While its total asset turnover ratio decreased, Synalaits fixed asset turnover ratio increased. It went from generating 1.21 in 2019 to 1.32 in 2020. QUESTION 4) Analyse the profitability of invested capital (assets) for each of the two companies in 2020 as compared to 2019. Based on your calculations, explain the main reason(s) for the change in the profitability for each company over the two years. Note: ensure that you analyse in this question, not just describe the ratio values. (300 words ) Austals return on assets (ROA) in 2020 (9.53) was higher than the previous year in 2019 (7.03) meaning that Austal earned more operating profit per dollar of investment in assets than the previous year (Bakry 2020). Austals operating profit margin (OPM) in 2020 (6.25) increased from the previous year in 2019 (5.08) which means that Austal retained a high percentage of its sales in operating profit than the year before. Furthermore, Austals TATO ratio in 2020 (1.52) also increased, though not by a lot, from 2019 (1.39), indicating that it utilized its assets to generate sales more efficiently than the year before. This can be due to its large increase in Sales but a slightly less increase in Total Assets. Since, Austal was able to entail a large amount of sales with a similar amount of assets, it can increase the companys TATO. This means that Austals increase in ROA is due to both an increase in its OPM and TATO, and shows the companys improvement in converting its investments into profit. Synlait return on assets (ROA) in 2020 (8.26) was lower than the prior year (10.69). Evidently, Synlait has been operating less efficiently in both cost control and asset utilisation in the span of the two years. Synlaits operating profit margin (OPM) in 2020 (8.26%) was a sharp decrease from 2019 (11.98%), meaning that Synlait has been retaining less operating revenue which is potentially an operating expense control problem e.g. Cost of goods sold (Bakry, 2020). Hence, in 2019 there was an increase from 2019 COGS ($778,722,364) to 2020 COGS ($984,427,613) Synlaits total turnover in 2019 (0.89) was a slight decrease to 2020 (0.87), meaning that Synlait has had problems with investing money into the total assets (Bakry, 2020), for every dollar invested theyre generating from a 0.89 to 0.87 return. Even though there was an increase in their sales from 2019 to 2020, their increase in their total assets from 2019 to 2020 has not allowed their operating revenue (sales) to cover the new assets in the latest year (Bakry 2020). Due to their decrease in both their operating profit margin and total asset turnover, these ratios correlate for the given value in 2020. The company could see an improvement in each sector to generate more return on assets, therefore, increasing their invested capital. QUESTION 5): Given your answers and analysis in Questions 1 to 4, what is your final recommendation to the CLO of Bastion Banking Corporation: an approval or denial of the loan to each and/or both firms? Discuss the basis for your recommendation. Ensure you base your recommendation only on the change in the ratios for the two stated financial years (i.e., 2019 and 2020). (500 words)

PLEASE SOLVE QUESTION 5