ATHLETE WEAR COMPANY CASE STUDY (75 Marks) Athlete Wear Co. is an Irish sports clothing manufacturer for elite amateur and professional athletes. It has recently seen a decline in profitability owing to increased competition from low cost mass production manufacturers and has been outbid for contracts as official clothing supplier for three major international and domestic sporting events. As a result, Athlete Wear is faced with having to suspend its operations immediately unless it can find alternative markets to ensure the business can r

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ATHLETE WEAR COMPANY CASE STUDY (75 Marks)
Athlete Wear Co. is an Irish sports clothing manufacturer for elite amateur and professional athletes. It
has recently seen a decline in profitability owing to increased competition from low cost mass production
manufacturers and has been outbid for contracts as official clothing supplier for three major international
and domestic sporting events. As a result, Athlete Wear is faced with having to suspend its operations
immediately unless it can find alternative markets to ensure the business can remain operational. The
window to implement a new plan is very tight. Luckily, the production and sales directors had already
assembled a team to devise a plan, referred to as ‘Plan Stepdown,’ to diversify the business away from its
reliance on the elite sports market. While much of the outline of Plan Stepdown is ready, it still requires
input from the finance department. Although the team had intended to present Plan Stepdown at a
strategy conference planned for later this year, events have now overtaken them and an emergency
meeting of Athlete Wear’s senior management team has been called for next week. The principle agenda
items are an assessment of the current level of stress on the firm’s liquidity and a discussion of the
proposed Plan Stepdown which, it is hoped, can go into production quickly.
To assist with these discussions, you are required to prepare a financial report package for the meeting
regarding Athlete Wear’s current liquidity condition and the expected financial implications of the Plan
Stepdown proposal under consideration.
Your report package must include the following:
1. Trading, profit and loss account and balance sheet, 30th
April 2020 (20 Marks)
2. Forecast trading profit and loss for the six months ended 31st
October 2020, in contribution form.
(20 Marks)
3. Cash forecast for the six months ended 31st
October 2020. (20 Marks)
4. Evaluation of Athlete Wear ’s liquidity position and recommendations to improve it. (15 Marks)
Total (75 Marks)

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You have ascertained the following information to assist with your assessment:
 Athlete Wear is registered for VAT and charges 23% VAT on its sales. VAT returns are submitted
on-line following the end of each (calendar) two monthly period and payment is made by the 23rd
of the relevant month.
 Ignore taxation other than VAT.
 A loan of €69,000,000 was taken out with Irish Bank plc on 1st
May 2015 and is repayable in full
on 1st
May 2025. The interest rate on the loan is 10% per annum, payable quarterly on 1st
August, 1st
November, 1st
February and 1st
May each year.
 All Athlete Wear’s sales and purchases are on 30-day credit terms. All other expenses are paid
immediately on receipt of invoice.
 Athlete Wear depreciates it’s property, plant & equipment on a straight-line basis as follows:
o Buildings 40 years
o Machinery 20 years
o Delivery vans 5 years
o Fixtures & fittings 10 years
o Office furniture & equipment 10 years
 The following appendices are included:
o Appendix 1: Trial balance extracted from Athlete Wear ’s records @ 30th
April 2020.
o Appendix 2: Details of Plan Stepdown’s new manufacturing line and financial projections
for the six months from 1st
May 2020 to 31st
October 2020
o Appendix 3: Abridged financial statements for two previous years to 30th
April 2019 and
2018 .
Please note that whilst your report package is to include specified statements and reports, it is necessary
to include all relevant data and conclusions into the financial assessment to ensure that the full economic
impact is considered.

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Appendix 1 – Trial Balance @ 30th
April 2020
Trial Balance as at 30th
April 2020
€000 €000
Share capital 50,000
Retained earnings @ 30th
April 2019 206,655
Loan 69,000
Building (cost) 100,000
Building accumulated depreciation @ 30th
April 2019 25,000
Machinery (cost) 85,000
Machinery accumulated depreciation @ 30th
April 2019 12,750
Delivery vans (cost) 18,500
Delivery vans accumulated depreciation @ 30th
April 2019 7,400
Fixtures & fittings (cost) 14,000
Fixtures & fittings accumulated depreciation @ 30th
April 2019 4,200
Office furniture & equipment (cost) 13,500
Office furniture & equipment accumulated depreciation @ 30th
April 2019 5,400
Inventory @ 30th
April 2019 147,500
Trade receivables 87,300
Bank overdraft 15,950
Trade payables 45,700
VAT payable 6,220
Sales revenue 370,000
Purchases 248,750
Wages and salaries 62,500
Light and heat 7,250
Selling expenses 6,500
Advertising 3,000
Client entertainment 2,750
Legal and professional fees 1,500
Maintenance and repairs 4,800
Motor expenses 6,500
Office expenses 3,750
Interest expense 5,175
818,275 818,275
 On 30th
April 2020 the following expenses had not been accounted for. Athlete Wear plans to pay
the outstanding amounts on 1st
May 2020.
o Wages - overtime for April 2020 €3,200,000
o Petrol for delivery vans (inclusive of VAT @ 13.5%) € 150,000
o Legal fees (inclusive of VAT @ 23%) €1,230,000
 Inventory on hand @ 30th
April 2020 is valued at €171,250,000
 Amounts due from trade receivables at 30th
April 2020 are expected to be received 50% in May
and remainder in June
 Amounts due to trade payables at 30th
April 2020 are expected to be paid in full in May.

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Appendix 2 – Financial projections for six months ended 31st
October 2020
Plan Stepdown
Athlete Wear produce high quality, durable, branded sport wear for athletes. This is an elite market
reliant on high profile sporting event endorsements and branding. Having reviewed the success of
companies such as lululemon athletica inc., Plan Stepdown proposes to diversify into the general leisure
wear market with Athlete Wear’s own version of light-weight sport wear for general leisure use. As this
product line will not be elite sport wear it will be less expensive to produce but, as it is important not to
compromise Athlete Wear’s quality reputation, it will still be more expensive to produce than competitor
products. Direct costs per unit are forecast as…
Cost type Per unit
Materials: €43 per meter (inclusive of VAT @ 23%) 2 meters
Labour: €15 per hour 7 hours
Plan Stepdown will aim its product at the quality end of the leisure wear market and the expected selling
price of €250 per unit will reflect this.
As it also envisages that the product line expanding in the future Plan Stepdown has provisionally signed
up two well-known online ‘influencers’ to promote the product and enhance its marketability for the next
six months. These influencers will each be paid €25,000 + VAT @ 23% per month for the promotion
campaign.
Other cost projections to be considered are:
Note: The following cost projections have been stated inclusive of VAT as follows:
VAT @ 23% VAT @ 13.5%
Selling expenses Light & heat
Advertising Petrol
Maintenance & repairs
Motor expenses (note: €1,872,750 relates to petrol costs)
Office expenses
Fixed costs May June July August September October Total
Admin/sales salaries 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000 1,750,000 10,500,000
Light & heat 510,750 510,750 510,750 510,750 510,750 510,750 3,064,500
Selling expenses 1,168,500 1,168,500 1,168,500 1,168,500 1,168,500 1,168,500 7,011,000
Advertising 135,300 135,300 135,300 135,300 135,300 135,300 811,800
Maintenance/repairs 492,000 492,000 492,000 492,000 492,000 492,000 2,952,000
Motor expenses 650,375 650,375 650,375 650,375 650,375 650,375 3,902,250
Office expenses 215,250 215,250 215,250 215,250 215,250 215,250 1,291,500
Depreciation (per depreciation policy)
Loan interest (per loan agreement)

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In order for this line to be considered successful, it must produce a profit of €12,000,000 by the end of
October 2020. No other product will be produced or sold during this period.
The sales volume required to meet the profit target will be achieved as a percentage of annual sales as
follows:
Month
May 10%
June 10%
July 10%
August 10%
September 20%
October 40%
Expected sales mix per month is expected to be 30% directly to the public via on-line cash sales in Athlete
Wear’s existing on-line store and 70% credit sales on 30 day credit to retail outlets. It is expected that
50% of credit sales receipts will be received in the month following the sale with the remaining 50%
received the following month.
Inventory on hand @ 30th
April 2020 cannot be used in the new product line. Material for the new
production line will be bought in at the start of each month in the required amount to meet that month’s
sales. No inventory of material will be held. All material will be purchased on 30 day credit and paid for in
the month following purchase.
All operating expenses will be paid in the month incurred.
Influencers will be paid their endorsement fees monthly.
No new investment in machinery or equipment is required for the next 6 months.

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Appendix 3 – Abridged Financial Statements
Income statement for year ended 30th
April 2019 2018
€000 €000
Sales revenue 456,870 491,677
Less: Cost of goods sold (295,900) (323,551)
Gross profit 160,970 168,126
Less expenses (177,160) (113,936)
Profit for the year 43,810 54,190
Balance sheet as at 30th
April 2019 2018
€000 €000
Non-current assets
Property, plant & equipment 176, 250 135,870
Current assets
Inventories 147,500 152,480
Trade receivables 80,350 70,690
Bank 2,950 29,460
Total current assets 230,800 252,630
Total assets 407,050 388,500
Equity and liabilities
Share capital 50,000 50,000
Retained earnings 206,655 162,845
Total equity 256,655 212,845
Non-current liabilities
Loan 69,000 69,000
Current liabilities
Trade payables 43,205 75,465
VAT 32,960 26,320
Accrued expenses 5,230 4,870
Total current liabilities 81,395 106,655
Total liabilities 150,395 175,655
Total equity and liabilities 407,050 388,500

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Templates

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TEMPLATE FOR ATHLETE WEAR COMPANY CASE STUDY
Part 1 Trading, profit and loss account and balance sheet, 30th
April 2020
€000 €000
Sales revenue
Less: Cost of goods sold
Gross profit
Less expenses
Wages and salaries
Light and heat
Selling expenses
Advertising
Client entertainment
Legal and professional fees
Maintenance and repairs
Motor expenses
Office expenses
Depreciation expense
Interest expense
Profit for the year
Balance sheet as at 30th
April 2020 €000
Non-current assets
Property, plant & equipment
Current assets
Inventories
Trade receivables
Total current assets
Total assets
Equity and liabilities
Share capital
Retained earnings
Total equity
Non-current liabilities
Loan
Current liabilities
Bank overdraft
Trade payables
VAT payable
Accrued expenses
Total current liabilities
Total liabilities
Total equity and liabilities

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Part 2
Forecast trading, profit and loss account by month for 6 months ended 31st
October 2020, contribution format
May June July August September October Total
€ € € € € € €
Sales revenue
Less Direct variable costs
Materials cost
Labour cost
=Contribution
Less fixed costs
Admin/sales salaries
Light & heat
Selling expenses
Advertising
Maintenance/repairs
Motor/petrol exps
Office expenses
Depreciation
Loan interest
Endorsement fees
Total fixed costs
Profit/(loss)

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Note: please show all workings separately
Part 3
Cash forecast for 6 months ended 31st
October 2020
May June July August September October
Receipts (incl. of VAT)
Receipts from Customers
Total receipts
Payments (incl. of VAT)
Payments to Suppliers
Direct wages
Admin/sales salaries
Light & heat
Selling expenses
Advertising
Maintenance/repairs
Motor expenses
Office expenses
Endorsement fees
Loan Interest
VAT payments
Total payments
Net cash movement
Opening Cash balance
Closing cash balance

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Workings for VAT payment
VAT Return May June July August September October
Outputs
VAT on sales
Inputs - deductions
VAT on purchases
VAT on light & heat
VAT on selling expenses
VAT on advertising
VAT on maint/repairs
VAT on motor expenses
VAT on office expenses
VAT on endorsement fee
VAT amount recoverable
Net payable
Payment

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Part 4
Liquidity analysis
Ratio analysis 2018 2019 2020
Current ratio
Quick ratio
Receivables days
Payables days
Debt to equity
Observations on liquidity