FINANCIAL MANAGEMENT -1

ACTIVITY 6
Assuming that you are the owner of this company. Read and analyze the problem.
H & M’s Closet Harry Ming owns a clothing company, H & M’s Closet. She has a team of tailors
who work for 8 hours every day from Monday to Saturday. Demand for her business is strong but there
seems to be something preventing her from meeting the demands of her customers. H & M’s sells to both
big department stores and small boutique stores under the brand H & M’s Closet. Some brands also ask
her to manufacture their own designs. Business for H & M’s has been good since it started last 2014. In
fact, despite the tough competition from cheaper manufacturers abroad, she still manages to grow her
customer base. On December 4, 2015 H & M’s received a billing statement from a raw material supplier for
an amount of PHP400,000 which will be due in 5 days. She is also scheduled to pay her employees’
monthly salary of PHP70,000 the following day. Upon checking her bank account, she only has a
PHP67,000 balance. She knew she had exceeded her sales target last October and November so she is
wondering why she only has this amount of cash in her bank account. Was her money stolen? Being a
CPA, she checked the bank statement and her financial records and found no mistakes.

Here is the latest financial statement of H & M’s Closet as of November 30, 2015
Provide your own analysis.
1. Start by pinpointing the main issues relevant to the case (AR, Inventory, Payables).
2. Provide the correct figures for the profitability and leverage ratios.
a. What was the payable turnover for H & M’s Closet? How did it affect the problem?
b. What factors lead to the low cash balance for H & M’s Closet?
3. Discuss how you arrived at your decision. Highlight important recommendations/changes that must
be done to the operations of H & M’s Closet