RICHWOOD BERSATU HOLDINGS
FINANCIAL ANALYSIS OF YEAR 2013
(AAI)
Average Age of
Inventory
90 days
(ACP)
Average Collection
Period
201 days
(APP)
Average Payment
Period
208 days
CAPITAL ASSETS MANAGEMENT
Operating Cycle (OC)
= AAI + ACP
= 90 days + 201 days
= 291 days
Cash Conversion Cycle (CCC)
= OC - APP
= 291 days - 208 days
= 83 days
Richwood Capital Assets
Management
Resource Invested
Inventory
Sales
= RM 915, 100, 000
Cost of Good Sold (COGS)
= 24% of Sales
Purchase from Cost of Good Sold
= 65 %
(AAI) Average Age of Inventory
= 90 days
(ACP) Average Collection Period
= 201 days
(APP) Average Payback Period
= 208 days
= (Sales x COGS) x (AAI / 365)
= (915, 100, 000 x 0.24) x (90 / 365)
+ Acc. Receivable
= Sales x (ACP / 365)
= 915, 100, 000 x (201 / 365)
- Acc. Payable
= RM 54, 153, 860
= RM 503, 931, 780
= (Sales x COGS x COGS Purchase) x (APP/365)
= (915, 100, 000 x 0.24 x 0.65) x (208/365) = RM 81, 315, 140
= Year 2013 : Resource Invested
= RM 476, 734, 500
Solution
Speeding up the Collection Period by ⁄ and maintain the Payback Period.
New Average Collection Period = 201 days - 67 days
= 134 days
Implications on Resource Invested
Inventory
= (Sales x COGS) x (AAI / 365)
= (915, 100, 000 x 0.24) x (90 / 365)
+ Acc. Receivable
= Sales x (ACP / 365)
= 915, 100, 000 x (134 / 365)
- Acc. Payable
= RM 54, 153, 860
= RM 333, 954, 520
= (Sales x COGS x COGS Purchase) x (APP/365)
= (915, 100, 000 x 0.24 x 0.65) x (208/365) = RM 81, 315, 140
= New Resource Invested
= RM 306, 793, 240
Implication from the financial analysis
Obviously, reducing AAI (Average Age Inventory) or ACP (Average Collection
Period) or lengthening APP (Average Payback Period) will reduce the CCC (Cash
Conversion Cycle). Thus, reducing the amount of resources the firm must commit to
support operations.
Richwood Bersatu Holdings had decided to reduce the ACP (Average Collection
Period) by
⁄ which is 134 days, which means the resource invested on Richwood
Bersatu Holdings also can be reduced. So that, the financial management condition of
Richwood Bersatu Holdings will be more stable to support all the operations on wood
based product.