Business Finance Report: Analysis of Trend Ltd's Financial Health

This report analyzes the financial situation of Trend Ltd, focusing on its cash flow, working capital management, and overall financial health. The report highlights the company's struggles with increasing debt, significant investments, and trade disputes. It examines the impact of current management decisions on the company's financial results, emphasizing the need for immediate action to improve its financial position. The report proposes several strategies for improving cash flow through better working capital management, including reviewing and monitoring net working capital, improving inventory management, incentivizing receivables, implementing penalties for late payments, working with vendors, resolving disputes, examining debt obligations, having an effective collection team, and extending payment terms. These recommendations aim to help Trend Ltd navigate its current challenges and enhance its long-term financial stability. The report concludes by emphasizing the importance of proactive financial management for the company's survival and success.

Business finance

TABLE OF CONTENTS
EXECUTIVE SUMMARY........................................................................................................3
TASK 1......................................................................................................................................4
ii. Impact of current management of Trend Ltd over its financial results..............................4
iii. Steps for improving the cash flow of the company through better working capital
management............................................................................................................................5
REFERENCES...........................................................................................................................8

EXECUTIVE SUMMARY
The task 1 of the report presents about the key financial terms which is important to
understand in order to analyse the financials of the company. The current management of
Trend Ltd is assessed for the purpose of determining its current financial situation and the
impact of its business decisions over its financial position. Based on findings the situation of
the company is not good as the company is having huge amount of debt for which it is
looking for investors for reducing the debt amount. Therefore, certain ways are recommended
for improving the same if the organization finds it right fit.

TASK 1
ii. Impact of current management of Trend Ltd over its financial results
Currently the organization Trend Ltd, is facing a hard time which has resulted into
developing concern for the shareholders about the business performance. Last year company
had a reasonable profit but in contrast to it, the total debt of the company increased by £35
mn because of which the company is looking for more investors for investing money into the
business in order to reduce its debt liabilities (Saudi and et.al., 2019). At the end of the
previous year, the company acquired 30% stake in the company into clothes and sandals for
which the company has made an investment of £20 mn for the purpose of acquiring the
shares of the company in addition to this, the company has also paid £5 mn as an advance fee
for getting the exclusive supply of the products.
Apart from this, the huge amount of money is being blocked by its corporate
customer Tkechers last year which is approximately amounted to £10 mn. While on the other
hand, the company is undergoing a trade dispute with its another corporate customer named
Sadidas in the year 2019 and this has caused withheld of the payment as the negotiation is
still on among the layers and the industry consultants (Tsangari, 2019). This legal dispute is
expected to be arisen because of the sub-standard quality material being supplied by the
supplier in the year 2018. Thus, Trend Ltd refused to make payment to it supplier which is
threatening of the legal action against the company. Trend Ltd is also having a huge
inventory of materials and supplies at warehouse and it expects that after the disputes
resolves such level of inventory would be required.
Therefore, by looking at the working situation and the decision taken by the
company it can be stated that the Trend Ltd needs to stop at this point and start thinking about
the recovering money. As of now, the company needed to stop any-more acquisitions as the
financial condition of the company is not good. It is facing a very hard time pertaining to
carrying out its day to day business activities. The company has made lot of cash outflow and
there is probably no source for cash inflow, therefore, this makes it important for Trend Ltd
to understand the situation and based upon which take the decision (Al-Mawsheki, Ahmad
and Nordin, 2019). The huge amount of money is being blocked in its account receivables
and there is no chance when the amount will be recovered as its collection is not effective in
recovering the due amount on credit. The current situation clearly puts the organization into
the question of survival. If Trend Ltd continues to operate the business in the same way there
are chances that it may not be able to survive in the market and may attain the situation of

bankruptcy or cash crunch position. Thus, the financial position of Trend Ltd is very worse
but can be improved if effective measures are implemented on an immediate basis.
iii. Steps for improving the cash flow of the company through better working capital
management
For the purpose of effectively maintaining the desired level of cash flow in order to
carry out the daily business activities in a better way, it is important for the organization to
handle its working capital in a better way. Ineffective or running short on the working capital
not only creates stress but also results into causing inefficiency in the business operations.
Following are the certain ways through which the company can manage its working capital-
Reviewing and monitoring the net working capital (NWC)
Trend Ltd can set a good NWC ratio which is derived by dividing current assets by
current liabilities and getting the ratio of 1 or less would mean that the organization is making
use of its working capital fully leaving no space for doing any adjustment. This might result
into a problem which due to failure of the client in paying the amount on time and all of a
sudden an unexpected expense comes up (Coleman, Wu and Baidoo, 2020). Therefore, Trend
Ltd by timely monitoring the working capital will determine the business growth plan and is
having enough short term assets for paying out its current liabilities. Based upon this, future
business decisions can be taken.
Improve the inventory management system
It is recommended that the company should make use of digital inventory
management system which will help it in effectively optimizing the inventory management.
Through this automated system, the company can keep track of the orders, deliveries made
and the sales. This will provide support in overcoming the issue of overstocking and under-
stocking and the shortage of the inventory. It might seem to be expensive at first but it will
bring in efficiency to the business in the long run. This will assist in minimizing the losses
and interruption by the way of effective warehouse management.
Incentivize receivables
The company can offer attractive incentives to its account receivables in respect to
those who will pay the due amount on time in terms of discounts or offers etc. This will
encourage and motivate the customers to effectively meet with their payment obligations.
This will assist in establishing a good rapport with its customers along with maintaining a
good market position (Altaf and Shah, 2017). The automated account system will help in
maintaining the accounts up-to-date and thus, by assessing the creditworthiness of the clients
will help in protecting the business from being vulnerable to the bad debts.

Implementing penalty for late payment
Trend Ltd can add penalty to its account receivables which will serve as the
mitigating factor pertaining to the customers who are paying late. But it is important to make
sure that the customers are aware of this policy is ready to accept it like imposing late fees.
Otherwise, it might result into affecting the relationship with its clients and consequently
leading the business not achieving its desired outcome.
Working with vendors offering discounts
The company through the way of establishing a good working relation with its
vendor which provide help in getting special discounts and deals and in addition to this will
assists in earning the interest of the vendor. Under the situation of hard time or cash crunch
such relationship will help in long run through the way of leniency.
Resolving disputes with customers and vendors
The company Trend Ltd should work on avoiding the dispute with its customers and
the suppliers and clear it as soon as possible (15 Best Ways to Improve Your Working Capital.
2020). If the case goes to court, it is better to make sure it is resolved quickly without any
delay as it will help in avoiding any unnecessary legal expenditure. Receivables which are
help due to the disputes is the major concern for the many companies.
Examining interest payments and debt obligations
The organization should manage its debt which can affect its working capital
position. The company can implement automated system through which it can get the
notification in advance which the due date for payment approaches. This will help in
avoiding the situation of getting delay in making payment and thus attracting penalty for the
same. Along with this, Trend Ltd should critically examine its interest on debt and other such
instrument carrying interest. It can check whether any modification in the terms can be made
in respect to the payment of interest and instalment so that it can clear its debt obligation
early if possible which will help in avoiding the cost of paying the future instalment. This
will help in saving cost which will add to the working capital.
Having effective collection team
The organization can provide training to its collection team in respect to how to
collect the due amount from its customers on time. The company can also implement
attractive reward system which will be provided to the staff who collects the due amount
effectively. This will result into overcoming the problem faced by Trend Ltd pertaining to
recovering amount from its key customers. This is will lead to increase in the cash inflow
which was being blocked in its accounts receivables.

Extending payment terms
Since, Trend Ltd is not getting any discount pertaining to the early payment being
made to its suppliers of which it can take advantage of it. Therefore, the company can keep
the cash for the long time possible to pay its debt obligation (Zeidan and Shapir, 2017). The
company should first wait for the debtors to make the payment after which it should pay to its
account payables. This will improve the working cycle of the which will assist in optimizing
the payment terms through the way of filtering and negotiating with the vendors who can
provide payment extensions.
Thus, these are the few strategies recommended to Trend Ltd in respect to
effectively managing the cash flow through working capital management. There are chances
that these strategies might be expensive for the company but in long term it will bring in
benefits for the business.

REFERENCES
Books and Journals
Al-Mawsheki, R. M. S. A., Ahmad, N. B. and Nordin, N. B., 2019. CONCEPTUALIZING
THE DETERMINANTS OF WORKING CAPITAL FINANCING
POLICY. European Journal of Economic and Financial Research.
Altaf, N. and Shah, F., 2017. Working capital management, firm performance and financial
constraints: empirical evidence from India. Asia-Pacific Journal of Business
Administration.
Coleman, M., Wu, M. and Baidoo, M., 2020. Corporate Governance and Working Capital
Policy: An Unobserved Influence. Emerging Economy Studies. 6(1). pp.106-122.
Saudi, M. H. M., and et.al., 2019. Effect of Working Capital Management on Supply Chain
Performance and Company Growth in Malaysian Manufacturing Industry. Int. J Sup.
Chain. Mgt Vol. 8(1). p.256.
Tsangari, H., 2019. DECISION-MAKING ON WORKING CAPITAL MANAGEMENT,
BASED ON INDUSTRY DIFFERENCES. International Journal of Business. 6(2).
pp.99-110.
Zeidan, R. and Shapir, O. M., 2017. Cash conversion cycle and value-enhancing operations:
Theory and evidence for a free lunch. Journal of Corporate Finance. 45. pp.203-
219.
Online
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