Question
Question No 3: (A). Working Capital requirement of a business organization depends on certain factors like nature of business, size of business, Sales and demand
Question No 3: (A). Working Capital requirement of a business organization depends on certain factors like nature of business, size of business, Sales and demand conditions, Technology and manufacturing policy, credit policy and availability of credit. The descriptions of some of the business organizations are given below: i. Mr. Said is doing business of manufacturing bread and food products. The products are dispatched to various restaurants and super markets in daily morning on the basis of orders received. ii. ABC Company is doing business in trading Air conditions and Refrigerators. The company will have high sales in summer and in winter low sales. iii. Diamond Cement Company is a large cement manufacturing company which supply cement to from different parts of the country. iv. Mr. Khalid has mobile shop which provides Mobiles Sales and Service to customers. Since there is lot of competition in the market, Mr. Khalid provides credit facility to his loyal customers with liberal credit terms. Requirement: Identify the working capital requirements (low or high) in the above cases and explain the reason for them. (4 Marks) (B). Mr. Ahmed is looking for employment in organizations that provide financial services. Which organizations do you suggest to Mr. Ahmed in this regard? (2 Marks) (C). Al Marai company is planning to have a better working capital management. For this purpose, it needs to do certain calculations to know its performance and take improvement actions. The Companys Stores, Finance and Sales departments have provided the following details for making such calculations: Total Sales ..... OMR 720,000 (25% of Sales are Cash sales) Total Purchases.. OMR 600,000 (70% of Purchases are Credit Purchases) Average Accounts Receivables.. OMR 154,000 Average inventory.. OMR 125,000 Average Accounts Payables OMR 115,000 Cost of goods sold.. OMR 234,000 The Al Marai Company needs the following amounts for its decision making: (i) The Average length of the time required to convert its receivables into cash (ii) The Average length of the time required to convert its raw materials into finished goods and then to sell those goods (iii) Average length of the time between the purchase of raw materials and labor and the payment of cash for them (iv) Cash Conversion cycle Requirement: As a student of Financial Management, you are requested to help Al Marai Company by calculating the above amounts.
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