Town Mills Ltd is a wholesale business. Extracts from the businesss most recent financial statements are as
Question:
Town Mills Ltd is a wholesale business. Extracts from the business’s most recent financial statements are as follows:
The levels of trade receivables and trade payables increased by 10 percent, by value, during the year ended 31 May. Inventories levels remained the same. The chief financial officer believes that inventories levels are too high and should be reduced.
Required:
(a) Calculate the average operating cash cycle (in days) during the year ended 31 May and explain to what use this value can be put and what limitations it has.
(b) Discuss whether there is evidence that the business has a liquidity problem.
(c) Explain the types of risk and cost that might be reduced by following the chief financial officer’s proposal to reduce inventories levels.
Step by Step Answer:
Town Mills Ltd a Operating cash cycle Knowledge of the length of the operating cash cycle OCC allows the business to monitor it over time perhaps relative to other businesses or to some target It is n...View the full answer
