The managing director of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:

Required:

(a) Show, by using the data given, how you would calculate ratios that could be used to measure inventories and trade receivables levels during last year and this year.

(b) Discuss the ways in which the management of Sparkrite Ltd could exercise control over (i) inventories levels;
(ii) trade receivables levels.

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Sparkrite Ltd Income statements for years ended 30 September last year and this year Last year This year Sales revenue Cost of sales Opening inventories Purchases Closing inventories Gross profit Expenses Profit for the year 000 160 1,120 1,280 (200) 000 1,800 (1,080) 720 (680) 40 000 200 1,175 1,375 (250) 000 1,920 (1,125) 795 (750) 45