Singapore 76% GPM 25% 23.8% Current Ratio 1 1.09

Singapore electronics (SE)is a manufacturing firm that deals with computer and electronics products withsales demand in Asia & Europe. The company successfully secured hugecontracts with large computer manufactures to supply next generation laptopsand smartphone which can be attributed to the firm’s impeccable character andability to deliver on the contracts. SE’s ability to reach a wider market isevident in their product exportation to Asia & Europe. The credit worthiness ofthe company can be seen in the company’s ability to have secured an Overdraftfacility of 900,000 SDs with their present bank.

 The purpose of the Overdraftfacility of 900,000 SDs is to support working capital requirements as thecompany’s reliance on spontaneous financing was minimal. Although, the justificationfor the increase in overdraft facility are increase in its turnover, reductionin spontaneous financing and the potential growth that can still be maximizedby the customer, there is need for critical analysis of the financial and nonfinancial indicators. BASISFOR DISCUSSION  Ratios 6 Months to 31st Dec 2016  6 months to 30th June, 2017 revenue 950,000 1,260,000 %COGS 75% 76% GPM 25% 23.8% Current Ratio 1 1.09 Quick Ratio 0.55 0.

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61 Working capital 0 100,000 Cash conversion cycle 123days 148days Working investment 600 950  The company witnessedgrowth of 32.6% in sales due to improve contracts awarded to the business andexportation to Asia and Europe. However, the gross profit margin reduced from25% in December 2016 to 23.8% in June 2017 which is as a result of 35% Increasein cost of sales. SE should be inclined to finding strategies to aid costreduction which would be commensurate to the improvement in sales.  A source of concern is theincrease in days for the company to convert cash to cash, there was an increaseof 25 days between the two periods. This can be majorly attributed to theincrease in ARDOH of 11 days though APDOH dropped by 8 days as it is evidentthat the receivables and spontaneous financing (trade creditors) didn’tincrease proportionately. The company is advised toreviews its credit policy to its off takers especially beyond its borders asthe quality of these receivables cannot be ascertained.

This is not healthy forthe company and the bank as repayment and effective utilization of the facilityis tied to the receivables. The counterparty risk has to be critically assessedand addressed.  Additional information isneeded to determine why the company’s ARDOH increased from 92 days to 103 days.We need to ascertain if this is a business decision (to attract more customers)or customers inability to pay SE as and when due. The company needs to discussits relationship with its suppliers as their APDOH dropped despite increase insupplies and turnover. The company can afford to rely more on spontaneousfinancing rather than seeking to increase external facilities for workingcapital requirements which will further increase expenditure and stress theprofitability of the company that has been already affected. In terms of liquidity thecompany can be regarded as liquid. There was a slight improvement in thecurrent ratio from 1:1 in Dec 2016 to 1.

09:1 in June 2017. The current ratioshows that the current assets can adequately cover for current liabilities. Thequality of the receivables will also determine how liquid the company is and ifthe current asset can sufficiently repay the current liabilities. The workingcapital is positive and shows that that the company can pay its short term debtfrom short term assets. The working investmentshows that a high proportion of their cash is tied to their trading assets(inventories and receivables) leaving little or no cash for the day to dayrunning activities of the business. The cashflow analysis alsoreveals the company is presently is in a deficit position. The company wouldhave negative cashflow from their core business.

Cash sales generated as at 30thJune 2017 is 1.03m Singapore dollars while cash payment in the period is 1.08mSingapore dollars which will lead to a cash deficit of 50,000 Singaporedollars.  CONCLUSION Before we consider grantinga facility to the company, the following must be discussed: ü  Information on themanagement team must be provided.

ü  Qualification, experienceand expertise of management ü  Mode of operations of thecompanyü  Security/collateralü  Strategy to hedge againstforeign exchange riskü  Strategies to aid costreductionü  Do they have facilitieswith other banks? This is to determine gearing ratioü  To address counterpartyrisk so as to manage the cash conversion cycle.ü  The Increase in inventoryby 170,000 Singapore dollars might be a source of concern due to the nature of businessthe customer is into.  With newtechnology  coming up rapidly, the riskof obsolete stock  needs to be addressedü  Expansion plan of thecompany.