CASE STUDY

Case Study

Case Study

Task I

Swiftprint Ltd is an old well established printing company focusing on lithographic printing procedures. It currently has a Headquarters in Harlow, Essex and its printing factory in Leeds (200 miles away). Month end accounts are produced at the Headquarters in Harlow and are copied onto a CD and sent by courier to the plant in Leeds where the nominal ledger accounts are printed in full (3 boxes of paper) and then sent by taxi back to Harlow where they are decollated and distributed to Departmental Managers in sections split by cost code.

Accounting ratios are valuable tools easily calculated and interpreted from numbers in accounting statements. Ratios can answer questions with regard to debt and inventory, receivables terms, expenses and assets. Ratios are used to determine the accounting strengths and weaknesses of a company.

The ratios of Swiftprint Ltd show that the large amounts of inventory kept by the business negatively impacted the business. The inventory turnover of Swiftprint Ltd. is 2.9, as shown in Exhibit 1. The industry average has an inventory turnover of 7.0. Swiftprint Ltd. also has a low quick ration, when compared to the industry average. The low quick ratio shows an inability to convert current assets, excluding inventory, into cash. The receivables turnover and the average collection period are two additional indicators of accounting troubles. The low receivables turnover is a sign that the business in unable to collect on its account receivables.

Tightening up Reed's working capital policy with industry averages will aid in restoring accounting stability for Swiftprint Ltd.. The operations will be more efficient and effective, but with little or no impact on sales. Efficiency and effectiveness are not lucrative unless customer satisfaction is met.

Bar-coding inventory items will simplify inventory control for Reed. Modern computer inventory systems use barcodes to track inventory items. Items are automatically taken out of the inventory upon sale when barcodes are used and scanned at point of sale. Modern computer inventory systems monitor quantity and status of inventory. Ordering, tracking, shipping and receiving are all handled with the new system.

A simple accounting system application such as Peachtree, Lotus, Microsoft or Intuit would allow Swiftprint Ltd. to control and keep track of all receivables effectively. Account aging reports can be generated with any of these applications. Account controls will quickly be tightened.

Increased Inventory and Increased SalesA historic correlation exists between inventory levels and sales. Reed believed that many sales were lost when an item was not in the store when a customer requested it (Sulock, 1997). This belief led to the high inventory levels. Carrying a large inventory level increases costs. No evidence exists to prove the high inventory levels directly impact the increased sales. The increase in sales may have been due to customer preference or new styles, causing old inventory to build as new merchandise arrives.

The decision not to take advantage of suppliers' discounts resulted in higher cost of goods, a reduction in cash and a net revenue ...