Question
Question 1 (36 marks) Mr Kali started a small retail clothing company called Kali (Pty) Ltd (Kali). This company buys and sells animal print clothing.
Question 1 (36 marks) Mr Kali started a small retail clothing company called Kali (Pty) Ltd (Kali). This company buys and sells animal print clothing. The company has grown exponentially, and can be described as overtrading and undercapitalised. Kali tried to win market share by offering very good credit terms to customers. This has resulted in 65% of the companys sales being credit sales each year. He buys all of his purchases on credit. A very large retail clothing company with large accumulated cash balances and reserves in the same region as Kali reported its working capital cycle as follows: inventory of 65.25 days; debtor collection period of 139. days and creditors payment period of 73.25 days. 2021 2020 Inventory 4 300 000 3 500 000 Purchases 26 000 000 20 000 000 Cost of goods sold 25 200 000 18 500 000 Sales 65 000 000 50 000 000 Trade receivables 8 000 000 5 000 000 Trade payables 3 000 000 1 000 000 Required: (a) Calculate Kalis working capital cycle. Show all workings. (10 marks) (b) Explain your answer in (a) above in words. Comment on Kalis working capital cycle. You should refer to relevant information and benchmarks given in the question to support your answer. (8 marks) (c) List 3 actions you would take with regard to Kalis working capital cycle. Define any terms you use in the course of your answer. (6 marks) (d) Describe how a long working capital cycle affects a companys liquidity
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