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11. Basic liquidity ratios. You are been asked by the Chief Financial Officer of Kwing Corporation to analyze its liquidity position in 2012. You have gathered the following data from the records of the company and industry published reports (in thousands):" Kwing Corp. Industry Average Average cash P 3,500 P 2,000 Average trade receivables 8,000 10,000 Average inventory 6,500 7,000 Average trade payables 14,000 12.000 Net cash sales 20,000 25,000 Net credit sales 200,000 150,000 Cost of sales 130,000 112,000 Net credit purchases 140,000 96,000 The company uses a 360-day a year base. The credit terms offered to customers are 2/10, n/40. Suppliers give credit terms of 3/20. rv/40. Required: For Kwing Corporation and the industry, compute the following: a Receivable turnover b. Collection period Inventory turnover d. Inventory days (Days to sell inventory) 12 Effects of leverage to return on ordinary equity. You are in the process of organizing a new company to produce and sell a lady beauty product You feel that P5 million would be enough to finance the new company's operations. You are considering following financing max in raising the needed money for investment Straight ordinary equity All the P5 million would be raised by issuance of ordinary shares Shareholders' equity mix : P3.5 milion would be raised from ordinary shares issuances and P1.5 mition from the sale of P100 pr 10%. preference share Leverage and equity mix : P3.0 million would be obtained from ordinary shares issuances and P2.0 million from issuance of a 12% bonds payable. You estimated that the operations would generate an earning of P2 million each year before interest and taxes. The tax rate is 40% Required: Determine the best financing mix that would maximize return on ordinary equity(c) Interpretation of Statement of Cash Flowy Ebony ned Ivory companies operate in the time industry and are similar in sion, in terms of Investment in assets and sales volume. The ratio of current assets to current liabilities at the 3013 statement of financial poshion date is the same for both companies, approximately 24 to 1. This is very clog be the average for all companies in the industry. Selected data from the cash flow Matement of the two compunici tre presented an follows: Chang Company Operating bothcakes PIIS Sale of with Long-term borrowing 15 lawanne of share capital 164 PIJ P4 hary Company Operating whiches P 10 Imeriting athing Sak of rach 10 Financial acthitters Long-term borrowing TE hiwiney of shure capital 135 Ant Can Word Varbay P 12 P4 () Wentify similarities in the two companies (b) Wentify differences between the two companies. (c) Which company appears to be in a stronger position from the vice point of potential investor in the company's sick and motor crediton? Why
