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The current assets and liabilities of CSZ Co at the end of March 20X4 are as follows:

 

 $'000

 $'000

Inventory

 5,700

 

Trade receivables

 6,575

 12,275

Trade payables

 2,137

 

Overdraft

 4,682

 6,819

Net current assets

 

 5,456

For the year to end of March 20X4, CSZ Co had sales of $40 million, all on credit, while cost of sales was $26 million. 

For the year to end of March 20X5, CSZ Co has forecast that credit sales will remain at $40 million while cost of sales will fall to 60% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the company's overdraft. 

CSZ Co also plans to achieve the following target working capital ratio values for the year to the end of March 20X5:
 

Inventory days: 60 days
Trade receivables days: 75 days
Trade payables days:       55 days
Current ratio: 1.4 times

 

 

 

Requirements:

a

Calculate the working capital cycle (cash collection cycle) of CSZ Co at the end of March 20X4 and discuss whether a working capital cycle should be positive or negative.   

Marks: 6
b

Calculate the target quick ratio (acid test ratio) and the target ratio of sales to net working capital of CSZ Co at the end of March 20X5.   

Marks: 5
c

Analyze and compare the current asset and current liability positions for March 20X4 and March 20X5, and discuss how the working capital financing policy of CSZ Co would have changed.

Marks: 9

Answers submitted

Created by Ref Marking Action
Kamrunnahar Takia's picture
Kamrunnahar Takia
12/05/2020 - 20:04
a
10190
6
Kamrunnahar Takia's picture
Kamrunnahar Takia
12/05/2020 - 18:23
a
10188
6
Rakhi Gupta's picture
Rakhi Gupta
11/10/2020 - 15:00
a
10106
5 / 6
Rakhi Gupta's picture
Rakhi Gupta
11/10/2020 - 15:19
b
10108
5 / 5
Rakhi Gupta's picture
Rakhi Gupta
11/10/2020 - 15:31
c
10110
2 / 9
Md. Shadequl Islam Shamim's picture
Md. Shadequl Is...
02/16/2020 - 00:15
a
8612
3 / 6
Md. Shadequl Islam Shamim's picture
Md. Shadequl Is...
02/16/2020 - 18:11
b
8614
5 / 5
Md. Shadequl Islam Shamim's picture
Md. Shadequl Is...
02/16/2020 - 00:54
c
8616
3 / 9
Nafeez Imtiaz Hossain's picture
Nafeez Imtiaz H...
02/16/2020 - 04:40
a
8622
2 / 6
Nafeez Imtiaz Hossain's picture
Nafeez Imtiaz H...
02/16/2020 - 04:43
b
8624
5 / 5
Nafeez Imtiaz Hossain's picture
Nafeez Imtiaz H...
02/16/2020 - 04:44
c
8632
9
MD. Mahmudul hoque's picture
MD. Mahmudul hoque
11/18/2019 - 21:27
a
8058
5 / 6
MD. Mahmudul hoque's picture
MD. Mahmudul hoque
11/18/2019 - 22:39
b
8060
3 / 5
MD. Mahmudul hoque's picture
MD. Mahmudul hoque
11/18/2019 - 23:08
c
8062
7 / 9
Sohel Miah's picture
Sohel Miah
09/05/2019 - 11:09
a
7268
5 / 6
Sohel Miah's picture
Sohel Miah
09/05/2019 - 11:25
b
7270
5 / 5
Masum Billah's picture
Masum Billah
09/04/2019 - 11:59
a
7192
5 / 6