Reference no: EM132859102

Trend Ltd ("TL") manufactures gym clothing and footwear. It supplies several large design companies who then market the clothes and shoes under their own brands. The company last year had turnover in excess of £300 million. Two key corporate customers are Tkechers Ltd and Sadidas Ltd. The company is managed by Arpha, who owns 30% of the shares in the company, while the remaining 70% is split between four other family members. The other shareholders are concerned about the business. Although there seems to be plenty of business coming in and the last year has been reasonably profitable (Operating profit was £60 million last year before interest and tax), the company's debt has increased to £95 million from £60 million the year before. Arpha has started talking about the need for the other shareholders to invest more money to reduce the debt.

• Towards the end of last year TL acquired a 30% stake in a company which produces a range of walking clothes and sandals. TL invested £20 million in the company to acquire the shares and has agreed to pay a £5 million advance fee for exclusive supply of the products. The company is owed £10 million pounds for a series of large orders placed by Tkechers last year. There is also an outstanding dispute about a £12.5 million delivery to Sadidas completed in 2019. This has led to payment being withheld while negotiations continue between lawyers and industry consultants. There is a further problem that Arpha believes the Sadidas issue arose due to the supply of sub-standard materials by a supplier in 2018. He has refused to pay the supplier which is now threatening legal action. In the meantime, a large stock of materials and supplies has built up at the company's London warehouse. Arpha insists that the company needs to have this level of stock for when the dispute is sorted out. He is also reluctant to press his key customers too hard for payment. The other shareholders have approached TL's accountants to review the situation. Requirements:

i. Explain:

Problem a. what is meant by Profit and Cashflow and how they are different

Problem b. what is meant by Working Capital and, the meanings of Receivables, Inventory and Payables