3. Review of previous management accounts Flashcards
What are the key drivers of performance considered by the company?
Revenue
Gross profit
Operating profit
Inventory days
Trade receivable days
Trade payable days
How do you calculate inventory days
year end inventory / CoS * 365
How do you calculate trade receivable days?
year end DR / total revenue * 365
How do you calculate trade payable days ?
Trade payables / CoS * 365
How competitive is the market?
Highly competitive market
2019- due to uncertainty in housing market
Sum up Revenue, GP and Operating profit for 2019
- Competitive
- Uncertain housing market
- Didn’t reach 2 KPI’s
- Revenue growth = 2.2% (aim = 4%)
- GP% maintained at 30.1%
- meant no staff bonuses paid
- Encouraging higher operating profit, due to rationalisations at end of 2018 creating signifi admin OH savings (many redundancies, became more agile business)
What are 2 key performance indicators?
Annual growth in revenue of 4%
Annual increase in gross profit of £250k
How was WC and cash flow affected in 2019
Won another high profile and lucrative bespoke designn client - The Yacht Fit Project
But benefits come with risks - placed pressure on operations team, (unexpectedly) straddling ye now as client changed delivery schedule
Liquidity was strained due to above meaning higher trade receivables
Had to use overdraft facility , but short term financing meant could meet committed capital investments
Invested total of £730k in improving equip and logistics to enhance strategic position
What is the KPI for cash flow?
To have a net cash flow position each year
What investment was made in 2019?
£730k investment in equipment and logistics infrastructure to enhance their strategic capabilities
When was the overdraft used?
In 2019 overdraft was used due to liquidity issues
Extended overdraft had to be used to ensure annual £250k dividend was paid out
Describe revenue performance in 2020
- Steady trading in Q1 and Q2, little growth from previous year (reflects continuing weakness in retail market)
- Drop in trading at mid-year point
- Orders started coming through again May 20
- Q4 was best one recorded,
- Full year retail sales dropped 10.6%
- Further falls in commercial sales - difficult business environment (fell by 22.1%)
- Bespoke design revenue fell by 26.2%
Describe cost of sales for 2020
- Largest cost = materials (mostly wool-based yarn) (over half CoS)
- Global demand for wool dropped in 2020, so yarn prices fell slightly
- Materials & other production costs fell due to fall in sales
- GP dropped £1001k (down to £4,464k)
- GP margin fell from 30.1% -> 29.3%
- No bonus to staff again, none to directors either
Describe WC and cash flow in 2020
Interruption to business in middle meant inventory ran down
But by 30 Sept 20 manufacturing team were able to catch up and re-built demand to levels available
Liquidity: made use of banking facility and increased overdraft to £471k - necessary to meet capital commitments - invested further £655k on infrastructure
WC small change reflects higher level of credit taken from suppliers - ye trade payable days rose from 94 -> 128
Ye figures influenced by variable seasonal demand
Describe revenue 2021
Healthy trading activity, v busy first Q
Revenue grew by 10.2%
Retail sales were static compared to 2020
2020 = economic uncertainty, residential carpet buying decisions being deferred by some customers
Q4 = entry into synthetic carpet market - £180k revenue, encouraging uptake of first fully synthetic PP carpets
Main growth = non-retail channels, Commercial up £538k, bespoke up £1,013k
Bespoke:
2 largest clients age repeat businesses
14 large contracts generated £2.1m revenue
Rest of design from small contractors - £50k/contract
