PART A

$(18$ marks; $21$ minutes$)$

Builders Warehouse Ltd $(\text{'}$Builders$")$ supplies building and construction materials to both residential

customers and industrial contractors. The company also sells to European$-$based industrial contractors.

The Chief Financial Officer $($CFO$)$ raised concerns about the company's long cash conversion cycle at

the recent board meeting. The CFO emphasised the importance of shortening the cycle without hurting

the operations. As a result, it was decided that actions be taken to reduce the cycle without increasing

costs and$/$or reducing sales. This concern is on the back of reduced sales volumes due slow economic

growth. There are $365$ days in a financial year. The CFO presented the following information at the

recent board meeting:

REQUIRED:

a$)$ Identify and briefly discuss four concerns or factors which are eminent from the given scenario tha

Builders should consider that may affect its operations.

b$)$ Identify and briefly discuss one area on which the credit policy of Builders should focus on$.$

c$)$ Calculate the rand values of the benefit from improving each of the following elements of the cash

conversion cycle.

i$.$ Inventory

ii$.$ Receivables

iii. Payables

iv$.$ Total rand value benefit in net working capital

For this question, your workings must be rounded to two decimal places and your final answer to the

nearest rand. Show detailed calculations of each of the elements of the original situation as well as the

improved situation.