The current assets and current liabilities of Jackie Co at the end of December 2019 are as follows: 000 000 6,800 7,600 3,500 5,200 Inventory Trade receivables Trade payables Overdraft Net current assets 14,400 8,700 5,700 For the year to end of December 2019, Jackie Co had domestic and foreign sales of 44 million, all on credit, while cost of sales was 30 million. Trade payables related to both domestic and foreign suppliers. For the year to end of December 2020, Jackie Co has forecast that credit sales will remain at 50 million while cost of sales will fall to 50% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the company's overdraft. Jackie Co also plans to achieve the following target working capital ratio values for the year to the end of December 2020: Inventory days: Trade receivables: Trade payables: Current ratio: 55 days 70 days 50 days 1.5 days Required: (a) Calculate the working capital cycle (cash collection cycle) of Jackie Co at the end of December 2019 and discuss whether a working capital cycle should be positive or negative. (6 marks) (b) Calculate the target quick ratio (acid test ratio) and the target ratio of sales to net working capital of Jackie Co at the end of December 2020. (5 marks) (c) Analyse and compare the current asset and current liability positions for December 2019 and December 2020, and discuss how the working capital financing policy of Jackie Co would have changed. (10 marks) (d) Briefly discuss THREE internal methods which could be used by Jackie Co to manage foreign currency transaction risk arising from its continuing business activities. (9 marks) (Total: 30 marks) The current assets and current liabilities of Jackie Co at the end of December 2019 are as follows: 000 000 6,800 7,600 3,500 5,200 Inventory Trade receivables Trade payables Overdraft Net current assets 14,400 8,700 5,700 For the year to end of December 2019, Jackie Co had domestic and foreign sales of 44 million, all on credit, while cost of sales was 30 million. Trade payables related to both domestic and foreign suppliers. For the year to end of December 2020, Jackie Co has forecast that credit sales will remain at 50 million while cost of sales will fall to 50% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the company's overdraft. Jackie Co also plans to achieve the following target working capital ratio values for the year to the end of December 2020: Inventory days: Trade receivables: Trade payables: Current ratio: 55 days 70 days 50 days 1.5 days Required: (a) Calculate the working capital cycle (cash collection cycle) of Jackie Co at the end of December 2019 and discuss whether a working capital cycle should be positive or negative. (6 marks) (b) Calculate the target quick ratio (acid test ratio) and the target ratio of sales to net working capital of Jackie Co at the end of December 2020. (5 marks) (c) Analyse and compare the current asset and current liability positions for December 2019 and December 2020, and discuss how the working capital financing policy of Jackie Co would have changed. (10 marks) (d) Briefly discuss THREE internal methods which could be used by Jackie Co to manage foreign currency transaction risk arising from its continuing business activities. (9 marks) (Total: 30 marks)
