12.2 Hercules Wholesalers Ltd’s managers have been particularly concerned with the business’s liquidity position in recent months. The most up-to-date income statement and statement of financial position of the business are as follows:

The trade receivables and payables were maintained at a constant level throughout the year.
Required:

(a) Explain why Hercules Wholesalers Ltd is concerned about its liquidity position.

(b) Calculate the operating cash cycle for Hercules Wholesalers Ltd.

(c) State what steps may be taken to improve the operating cash cycle of the business.

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Income statement for the year ended 31 December last year 000 Sales revenue 000 452 Cost of sales: Opening inventories 125 Purchases 341 466 Closing inventories (143) (323) Gross profit 129 Expenses (132) Loss for the year (3)