I
The following information has been calculated for D Co:
Trade receivables collection period
Raw material inventory turnover period
Work in progress inventory turnover period
Trade payables payment period
Finished goods inventory turnover period
5
6
2
7
6
weeks
weeks
weeks
weeks
weeks
What is the length of the CCC?
The following information has been calculated for D Co:
$000000
Assume
Sales
27
COS
15
Trade receivables collection period
Inventory turnover period
Trade payables payment period
365 days per year
50
60
40
What is the net investment in working capital required for the next year?
A cash budget was drawn up as follows:
Opening Cash
500
October
November
December
Receipts:
Credit Sales
Cash Sales
4 500
10 000
11 000
4 500
14 500
6 000
Payments:
Suppliers
Wages
Overheads
13 000
4 600
3 000
4 200
2 300
1 750
7 800
3 000
1 900
Show in which month you will have to take an overdraft and its amount?
Show amount of cash at the end of the year.
days
days
days
II
Cash
Statements of financial position for 1 year (extracts)
$000
2017
Assets
NCA
48 965
CA:
Inventory
Receivables
Cash
8 160
8 775
0
Total assets
65 900
Statements of P&L
$000
Revenue
COGS
(extracts)
2017
49275
37230
(all on credit)
These levels of credit sales and cost of sales are expected to
be maintained in the coming year.
Equity and liabilities
NCL
5% overdraft
8% preference shares (1$)
0
0
CL
Trade payables
Overdraft
10 200
3 800
Total liabilities
14 000
Cash forecasts:
$000
Receipts
Payments
Six-monthly interest on traded bonds
Capital investments
1
4 220
3 950
2
4 350
4 100
200
3
3 808
3 750
2000
Overdraft limit
$000
4000
Overdraft interest (payable)
%
6,17 , payments monthly
with payments being made each month based on the opening balance at the start of that month.
Assume
365 working days per year
The CFO has a proposition to improve AR management through staff training and operation process improvement and he assumes:
AR reduction
Duration of reduction
53 days (average sector value)
6 months,with an equal reduction in each month
Inventory days reduction BY
2 days per month
Duration of reduction
3 months
He does not expect any change in the current level of AP.
Calculate:
(i) the forecast cash flow in three months’ time if no action is taken; and
(ii) the forecast cash flow if the finance director’s proposals are implemented
implemented
III
J Plc’s cash budget predicts a short-term surplus in the near future.
Which of the following actions would be appropriate to make use of the surplus?
Pay suppliers earlier to take advantage of any prompt payment discounts
Buy back the company’s shares
Increase payables by delaying payment to suppliers
Invest in a long term deposit bank account
True or false?
Working capital should increase as sales increase
An increase in the cash operating cycle will decrease profitability
Overtrading is also known as under-capitalisation
All true
A company is preparing its cash flow forecast for the next financial period.
Which THREE of the following items should be included in the calculations?
A corporation tax payment
A dividend receipt from a short term investment
The receipt of funding for the purchase of a new equipment
A bad debt written off
Although cash needs to be invested to earn returns, businesses need to keep a certain
amount readily available.
Which THREE of the following are reasons for holding cash?
Movement motive
Transactions motive
Precautionary motive
Investment motive