Li & Fung Limited, based in Hong Kong, is one of the largest suppliers of consumer goods in the world, operating from 70 offices in 40 countries. The company uses IFRS and reported the following information (in millions of HKD) in its financial statements:
Instructions
(a) Calculate the current ratio, receivables turnover, and inventory turnover for 2010 and 2009. Comment on Li & Fung’s liquidity.
(b) Do you anticipate any difficulties in comparing the ratios you calculated in (a) for Li & Fung with those of a Canadian competitor?
(c) Determine the bad debts expense recorded by the company in 2010 and 2009. There were no recoveries of uncollectible accounts.
(d) In 2009, the allowance for doubtful accounts was just slightly lower than it was in the previous year even though its accounts receivable had declined considerably. Comment on the reasons why this could have occurred.
(e) The company, in a note to the financial statements, indicates that its credit risk is not significant. Discuss some reasons why management has made this statement.
(f) On occasion, the company will factor its accounts receivable. Given that the industry average for receivables turnover is 8 times, the company may not use factoring much. Can you explain why?
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