Case study
Yaw Mkt Pty Limited (YML)
In late 2008, Yaw Mkt Pty Limited (YML) was incorporated by a team of three entrepreneurs – Kathy Lopez, Sharron Ho and Tyler Carroll. They used their combined skillsets to establish the company website, YawMkt.com.au, which supplies surfing-related products, including clothing, surfboards, surf skis and accessories.
YML was incorporated during the global financial crisis. At the time, each of YML's three entrepreneurs had been made redundant from their well-paid executive jobs. Kathy had been the Asia-Pacific head of operations for a US-listed warehouse and logistics company, while Sharron had been the head of information technology for a United States (US) business advisory firm. Tyler, on the other hand, had been based in London as a lead investment banker for a large, European-owned bank. They each received a sizeable payout, so agreed to provide $500,000 in seed capital and provide their services to YML, at no charge for a period of 12 months, while the business was being established.
Based on advice from Kathy's Chartered Accountant, the company was registered with each owner holding 100,000 shares (at a cost of $1 each) and the balance of their seed capital to be treated as an interest-free loan for 12 months. Kathy, Sharron and Tyler were each appointed as directors of YML. The Chartered Accountant recommended that they each sign a shareholder’s agreement to protect their interests and establish expectations around making business decisions.
Company history
By the end of November 2009, the team had accomplished the following:
• Rented 2,000 square metres of warehouse space in Sydney, and fitted out the warehouse space and an office area.
• Established supply agreements with several key surf goods manufacturers and procured goods from them.
• Built a website and integrated it into the supply chain and financial systems.
• Engaged an external marketing organisation to help develop an online presence and began online promotion of the business.
YawMkt.com.au went live for orders on 30 November 2009, which was a 'Cyber Monday' (an annual retail sales event in which businesses encourage customers to make online purchases). It was Sharron's idea to launch the website on this date.
The initial launch experienced both success and failure – success came through the number of people visiting the website and the order conversion rate of over 3%. However, due to the high volume of traffic, the website was down for 30 minutes and experienced slow response times. This caused integration issues with the inventory system, allowing online sales for more units than were in stock for several popular items.
Over the following months, these problems were resolved, and YML settled into a more regular business rhythm. Between 2010 and 2012, YML's brand recognition grew slowly but steadily. However, YML continued to trade at a loss, resulting in the owners increasing the level of their investments to meet operational cash flow requirements.

Customer order and fulfilment process
The following is an outline of YML’s online customer order and fulfilment process after its dropshipping program was introduced.
1. Consumer visits the YML website, selects products, places order, and makes payment to YML via credit card or one of the approved 'buy now, pay later' vendors that partner with YML.
2. Order information is passed to YML's logistics system, LogiSys.
3. For each line item on the order, LogiSys determines if goods are to be supplied directly by YML or via a dropshipping supplier.
a. If YML supplies the ordered items:
i. Details are passed to order fulfilment.
ii. Picking is slip printed.
iii. Goods are picked.
iv. Transport is booked and items are collected by transport company.
v. Tracking information is emailed to customer.
vi. Goods are delivered.
b. If a dropshipping supplier supplies the ordered items:
i. Email is sent to supplier advising they have an order to fill.
ii. Where a supplier has elected to integrate their systems with YML via an application programming interface (API), order details are passed electronically to supplier. Where no link exists, the supplier logs into the YML portal and downloads details of open orders, including the customer details.
iii. Supplier picks items, arranges shipping, and ships items to customer.
iv. Supplier updates order tracking details into LogiSys, either electronically or manually.
4. Customer is provided with the order terms, which allow customers to return goods within seven days for a full refund, provided goods are returned in as shipped condition.
Dropshipping terms and conditions
The following is an outline of the key terms and conditions for dropshipping suppliers:
• Suppliers provide details of products to list on YML's website, including images and sale prices, but YML must approve listings prior to products being made available for sale.
• Suppliers must ship orders within 48 hours of the customer placing the order, and suppliers are responsible for all freight and shipping costs.
• All shipments must be sent in YML branded bags/boxes, which YML provides to suppliers at no cost, ordered via the YML portal. No additional marketing or promotional materials can be included with the order.
• Suppliers must provide details of available inventory levels for all items to YML on a weekly basis or more frequently if possible.
• Suppliers can participate in promotional activities on the YML website, such as price discounting or other campaigns.
• As per YML's accounts payable policy, YML pays all suppliers the order value less 15% commission by the 20th of the month following purchase. Supplier credit terms are '1.75/15, net 30', which means that YML can pay the account within 15 days of invoice issue date to receive a 1.75% discount.
• YML uses a mystery shopping function to ensure supplier compliance with order fulfillment requirements.
Part 1: (400 words)
1. Identify 5 weaknesses of the Customer order and 5 weaknesses fulfilment process and Dropshipping terms conditions
2. Provide steps to eliminate each of those weakness.
3. Explain the revenue recognition as per IFRIC15 from Customer orders sales and Dropshipping separately and provide how to record journal entries .
Financial information
YML has a 30 June year end, and the following financial information has been included for reference:
• Table 1: Extracts of the income statements for the years ended 30 June 2021, 2022 and 2023
• Table 2: Extracts of the balance sheets as at 30 June 2021, 2022 and 2023
• Table 3: Selected ratios as at 30 June 2021, 2022 and 2023
• Table 4: Yaw Mkt Limited dashboard as at 30 June 2021, 2022 and 2023

Table 1
Extracts of the income statements for the years ended 30 June 2021, 2022 and 2023
Yaw Mkt Pty Limited
Income statement for year ended 30 June (Extracts) 2023
$000 2022
$000 2021
$000
Direct sales 42,610 39,874 37,692
Market place commission 358 0 0
Total sales revenue 42,968 39,874 37,692
Less: Cost of goods sold (23,418) (21,931) (20,731)
Gross profit 19,550 17,943 16,961
Gross margin 45.5% 45.0% 45.0%
Plus: Other income 96 71 54

Less: Expenses
Distribution expenses (including warehouse) 6,200 5,981 5,465
Merchant fees 623 698 754
Marketing 6,230 5,303 4,900
Employee benefits 4,082 3,589 3,204
Depreciation and amortisation 322 259 188
Amortisation of intangibles 172 157 128
Financing costs 111 88 94
Other expenses 1,289 1,176 1,037
Total expenses 19,029 17,251 15,769

Net profit before tax 617 763 1,246
Less: Income tax (152) (195) (334)
Net profit/(loss) after income tax 465 568 911
Other income information 2023
$000 2022
$000 2021
$000
Earnings before interest, tax, depreciation and amortisation (EBITDA)
1,221
1,266
1,655
Dividends paid (256) (312) (501)

Table 2
Extracts of the balance sheets as at 30 June 2021, 2022 and 2023
Yaw Mkt Pty Limited
Balance sheet as at 30 June (extracts) 2023
$000 2022
$000 2021
$000
CURRENT ASSETS
Cash and cash equivalents 4,923 3,805 4,669
Trade and other receivables 3,078 1,455 748
Inventories 1,921 3,097 3,168
Other current assets 84 28 54
TOTAL CURRENT ASSETS 10,006 8,385 8,639
NON-CURRENT ASSETS
Right-of-use asset 42 169 296
Property, plant and equipment 870 780 652
Intangible assets (including software and website) 1,669 858 784
TOTAL NON-CURRENT ASSETS 2,581 1,807 1,732
TOTAL ASSETS 12,587 10,192 10,371

CURRENT LIABILITIES
Trade and other payables 4,586 4,086 4,146
Lease liabilities 37 111 111
Income tax payable 38 49 84
Employee benefits 584 638 621
Deferred revenue 589 796 731
Provisions – refunds and replacements 387 359 339
Provisions – dividends 136 175 265
Shareholder loans 150 150 150
Interest-bearing debt 100 100 100
TOTAL CURRENT LIABILITIES 6,607 6,464 6,547
NON-CURRENT LIABILITIES
Employee benefits 136 185 175
Lease liabilities 0 37 148
Shareholder loans 400 750 900
Interest-bearing debt 400 700 800
TOTAL NON-CURRENT LIABILITIES 936 1,672 2,023
TOTAL LIABILITIES 7,543 8,136 8,570

NET ASSETS 5,044 2,057 1,801

Table 3
Selected ratios as at 30 June 2021, 2022, and 2023
Indicators 2023 2022 2021 Industry benchmark
Gross profit margin 45.5% 45.0% 45.0% 36.0%
Return on assets (EBIT ÷ total assets) 5.8% 8.3% 12.9% 10.0%
Interest coverage ratio (earnings basis) (EBIT ÷ interest) 6.58 9.69 14.32 -
Inventory days (using year end balances) 30 days 52 days 56 days 120 days
Current ratio (total current assets ÷ total current liabilities) 1.51 1.30 1.32 1.37
Debt-equity ratio (total liabilities ÷ total equity) 1.50 3.96 4.76 -
Debtor days (using year end balances) 26 days 13 days 7 days 30 days
Creditor days (using year end balances) 71 days 68 days 73 days 60 days
Asset turnover (total sales revenue ÷ average total assets) 3.77 3.88 3.74 2.10
Table 4
Yaw Mkt Pty Limited dashboard as at 30 June 2021, 2022, and 2023
Part 2. (600 words)
4. Write a commentary to be included with the dashboard. Your commentary should summarise key takeaways for the Board from the information included on your dashboard, the financial statements and ratios.
5. Outline the key recommendations you would make to the Board, based on your analysis. (How to improve/overcome issues identified in the above analysis)