Q 1

The current assets and current liabilities of C and Co at the end of March 2014 are as follows: $000 $000 Inventory. 5,700

Trade receivables. 6,575 12,275

Trade payables 2,137

Overdraft 4,682 6,819

Net current assets 5,456 For the year ending 31st March 2014, C and Co had domestic and foreign sales of $40 million, all on credit, while cost of sales was $26 million. Trade payables related to both domestic and foreign suppliers. For the year ending 31st March 2015, C and Co has forecast that credit sales will remain at $40 million while cost of sales will fall to 60% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the companys overdraft.

CSZ Co also plans to achieve the following target working capital ratio values for the year ending 31st March 2015: Inventory days: 60 days Trade receivables day: 75 days Trade payables days:. 55 days Current ratio: 1.4 times

Required: A. Calculate the working capital cycle (cash collection cycle) of C and Co as at 31st March 2014 and discuss whether a working capital cycle should be positive or negative. (6 marks)

B. Calculate the target quick ratio (acid test ratio) and the target ratio of sales to net working capital of C and Co as at 31st March 2015. (5 marks)

C. Analyse and compare the current asset and current liability positions for March 2014 and March 2015 and discuss how the working capital financing policy of C and Co would have changed. (8 marks)

D. Analyse and compare the current asset and liability positions for March 2014 and March 2015 and discuss how the working capital financial policy of C and co would have changed.