Question

The table below provides operating and balance sheet information for Myer Holdings Limited from the July 31^st financial year ends from 2010 to 2013. Myer Holdings Limited is an ASX-listed company that operates in the consumer discretionary sector, and whose main business is the operation of the chain of 67 Myer department stores around Australia.

	2010	2011	2012	2013
Income Statement items
Sales (operating) revenue	2,825,034,000	2,666,803,000	2,612,700,000	2,737,544,000
Cost of goods sold	1,672,073,000	1,551,112,000	1,464,574,000	1,450,678,000
Net profit after tax	67,182,000	159,665,000	141,067,000	132,077,000
Balance Sheet items
Cash	105,834,000	37,274,000	38,058,000	81,470,000
Accounts receivable	19,914,000	21,006,000	19,627,000	13,821,000
Inventories	352,813,000	381,261,000	385,702,000	363,880,000
Total Current Assets	482,692,000	446,751,000	441,472,000	479,176,000
Property, plant & equipment	468,050,000	535,139,000	515,482,000	508,974,000
Intangibles and goodwill	921,020,000	943,880,000	1,075,000,000	931,017,000
Total Non-current Assets	1,471,222,000	1,531,211,000	1,476,721,000	1,460,529,000
Accounts payable	437,568,000	416,032,000	397,137,000	387,673,000
Short-term debt	0	0	0	0
Total Current Liabilities	557,414,000	552,190,000	502,869,000	522,729,000
Long-term debt	419,419,000	419,591,000	421,193,000	420,824,000
Total Non-current Liabilities	539,060,000	564,442,000	537,644,000	511,334,000
Shareholders’ Equity	857,440,000	861,330,000	877,680,000	905,642,000

Note:

Assume that 60% of the company’s total sales revenue are provided on credit terms of various forms and result in the generation of accounts receivable.

Provide answers to the following questions:

1) Calculate the cash conversion cycle (CCC) for Myer Holdings Limited at the end of the 2013 financial year.

2) Based on the information provided in the table, outline the types of current asset investment policy (relaxed, moderate, or restricted) and current asset financial policy (conservative, moderate, or aggressive) that you think Myer Holdings Limited is currently operating. Can you observe any changes in the company’s working capital policies over the 2010-2013 period?

Answer 1

Myer Holdings Limited 1) Cash Conversion Cycle - Days Inventory Outstanding + Days Receivable Outstanding - Days Payable Outstanding Average Accounts Receivable Average Accounts Payable Average Inventory (Cost of Goods sold /365) (Net credit Sales/365) (Cost of Goods sold /365) [(363880000+385702000)/2] (1450678000/ 365) [(13821000+19627000)/2] (2737544000*6096 / 365) [(387673000+397137000)/2] (1450678000/365) 374791000 16724000 392405000 3974460.27 4500072.33 3974460.27 3.72 94.30 98.73 -0.72 Myer Holdings Limited is having negative cash conversion cycle which reflects that the company is capable to realize the balance from receivable and inventory earlier than the time period to pay to payables.

2) 2011 2013 2010 2012 Total Current Assets (A) Total Current Liabilities (B) 482692000 446751000 441472000 479176000 557414000 552190000 502869000 522729000 Working Capital (A-B) -74722000 105439000 -61397000 -43553000 Total Sales (C) 2825034000 2666803000 2612700000 2737544000 Current Asset per $of Sales (A/c) 0.17 0.17 0.17 0.18 Company is following the restricted policy for current asset investment policy and during the period of 4 years as above, Company has not changed its policy. Since company has negative working capital in all the period of 4 years then it can be considered that company is following the conservative policy of current asset financing policies since company is using the long term financing sources to finance the short term assets. and company has not changed its approach so far