AY2021 Financial Management

Question 1   You are the Financial Manager of Laughing Ocean Limited (“LOL”), a company that imports fresh seafood from Malaysia.   Due to the current pandemic, the cost to import seafood has increased tremendously, and it is also more challenging to receive payment from customers. The management of LOL is concerned about the company’s ability to pay its suppliers for the next 12 months.  In additional, the shareholders of LOL have expressed some concerns on the company prospects in the future.   Below is an extract of financial information of LOL:   (A) Ratios:   Ratios For Year ended 31 December 2020 For Year ended 31 December 2019 Gross Profit Margin 30% 60% Net Profit Margin 10% 40% Accounts Payable Turnover 42 days 29 days   (B) Cash Budget:   Laughing Ocean Ltd Cash Budget Jan $ Feb $ Mar $ Beginning cash balance 49,890 37,390 19,990 Add: Cash receipts (from collections) 68,600 66,400 57,500 Cash available for disbursements 118,490 103,790 77,490 Less: Cash needed for disbursements       - Inventory (62,800) (65,500) (69,750) - Utilities/Electricity (2,000) (2,000) (2,000) - Selling and Administrative expenses (16,300) (16,300) (16,300) Ending cash balance 37,390 19,990 (10,560)   Using the financial information provided, prepare a report to your Board of Directors highlighting the impact of current economic crisis on LOL.  In addition, identify and justify a suitable working capital policy that would be most suitable for the business, given its current challenges. Your analysis should include: · Analyse the given ratios and explain its impact. · Identify and justify the appropriate working capital policy for the scenario given.Question 2 LOL expects to sell 9,000 crates of seafood in year 2021.  It costs $32 to store each crate in a cold storage room for a year and $30 to administer each order from its supplier. LOL operates 360 days in a year.  (a) Calculate LOL’s safety stock level if they want to order the quantity at optimal level. The supplier requires 4 days lead time to deliver an order. Show your workings clearly. As much as possible, LOL’s company policy is to have long Accounts Payable Period.  Advise the Management on some consideration of such policy.