QUESTION 2

Recently, you have just been appointed as financial controller of Cloud 9, a privately owned entity. You have been asked to attend the forthcoming monthly management meeting and report on aspects of the entitys financial position. You are aware that during the last year the management team has been concerned about the liquidity of Cloud 9, and about its working capital management.

The following information is available from the management accounts of Cloud 9 for the year ended 30 September 2020:

6 months to 30 September 2020 6 months to 31 March 2020

$000 $000

Inventories at period end 1,050 550

Receivables at period end 1,100 950

Cash and cash equivalents at period end - 150

Trade payables at period end 1,400 800

Short-term borrowings at period end 250 -

Revenue for the period 2,250 2,000

Cost of sales for the period 1,500 1,300

Required:

Prepare a brief report that analyses the working capital and liquidity position of Cloud 9. (Up to 10 marks are available for the calculation of relevant ratios.)

(25 marks)