Q2. Joanna Fisher, the managing director of Faloye Ltd, is concerned that the company is not managing its working capital efficiently. She has sent you an email asking for your assistance in identifying any problems area(s) and for your suggestions as to how these can be remedied.

You have calculated the following ratios in respect of Faloye Ltds latest financial statements and have obtained the industry average for each of these comparative purposes.

	Faloye Ltd	Industry average
Current ratio	1.6:1	2.1:1
Inventory holding period	37 days	35 days
Trade receivables collection period	38 days	39 days
Trade payables payment period	53 days	days

Prepare a report to Joanna that includes:

(A)- Comments on whether Faloye Ltd has performed better or worse, in respect of the calculated ratios.

(B)- Three suggestions as to how the working capital of Faloye Ltd could be more effectively managed.

(C)- Discuss three limitations of ratio analysis.

D)- Meadow Ltd has a loss before tax of 11,500 for the year and the statement of financial position and statement of comprehensive income show the following;

Depreciation	8,000
Finance costs	1,500
Decrease in inventories	4,000
Increase in trade receivables	5,000
Decrease in trade payables	3,000

Required-: Calculate the cash generated by operations for the year