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Abc Sdn Bhd

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1. ABC Sdn Bhd has a 10-year bank loan from Maybank Berhad that stipulates that ABC Sdn Bhd must ensure that the firm's current ratio must, at all times, be at least 3.

Suppose that ABC Sdn Bhd has just received an order from several of its large customers In order to be able to cope with the increased orders, ABC Sdn Bhd has had to increase its stocks of raw materials and finished goods to ensure that it is able to deliver the goods to its customers on time.

You are told that the working capital of ABC Sdn Bhd currently stands as follows:

a. Current Assets: RM18 Million

b. Current Ratio at present: 4.2


By how much can ABC Sdn Bhd increase its stock level before it breaches the condition for current ratio set by Maybank Berhad?

Note: You are to assume that ABC Sdn Bhd shall use the bank's short term financing equal proportions to finance the increase in stocks.

2. Corn Limited has a gross profit margin of 25% and sales of RM19,500,000 for the recent financial year. 75% of the firm's sales are on credit and the remainder are on cash terms. Corn Limited current assets now stand at RM3,100,000, current liabilities at RM660,000 and cash in hand at RM320,000.

a. If Corn Limited trade debtors balance is RM1,156,000, what is the firm's trade debtors average collection period?

b. If Corn Limited attempts to reduce its trade debtors collection period to 22 days, which should be the targeted level of trade debtors?

c. Suppose you are told that the stock turnover is 7 times. What is Corn Limited level of stocks?

d. What is the current ratio of Corn Limited?

3. Firm A and Firm B have debt-total assets ratio of 0.60 and 0.40 respectively. Return on total assets for Firm A and Firm B are 25% and 32% respectively. Which firm has the greater return on equity?

4. Togo Sdn Bhd has the following information:

a. Net profit margin of 8%

b. Net profit of RM432,500

c. Trade debtors' balance of Rm358,000

Assuming that 5% of sales by Togo Sdn Bhd are on credit terms, what is the firm's trade debtors turnover days?



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