6 Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent Profit and Loss Account and Balance Sheet of the company are as follows:

The debtors and creditors were maintained at a constant level throughout the year.
Required

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

(b) Explain the term ‘operating cash cycle’ and state why this concept is important in the financial management of a business.

(c) Calculate the operating cash cycle for Hercules Wholesalers Ltd based on the information above.
(Assume a 360-day year.)

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

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Profit and Loss Account for the year ended 31 May 199x Sales Less: Cost of sales Opening stock Add purchases Less: Closing stock Gross profit Expenses Net loss for the period 452,000 125,000 341,000 466,000 (143,000) 323,000 129,000 (132,000) (3,000)