Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Managing Director of a Trading Company, has just received summary sets of Financial Statements for last year and this year. Trading Company Income Statements

image text in transcribed

The Managing Director of a Trading Company, has just received summary sets of Financial Statements for last year and this year. Trading Company Income Statements for years ended December 31 last year and this year Last year $ This year $ Sales Revenue 1,800,000 1,920,000 Cost of Goods Sold: Beginning Inventories 160,000 200,000 Purchases 1,120,000 1,175,000 Cost of Goods Available for Sales 1,280,000 1,375,000 Ending Inventories (200,000) (250,000) Cost of Goods Sold (1,080,000) (1,125.000) Gross Margin/Profit 720,000 795,000 Expenses (680,000) (750,000) Net Income/Profit 40.000 45,000 Balance Sheets as at December 31 last year and this year Last year $ This year $ Assets: Current Assets: Cash 4,000 2,000 Trade Receivables 375,000 480,000 Inventories 200.000 250.000 Total Current Assets 579,000 732,000 Non-Current Assets 950.000 930.000 Total Assets 1,529.000 1.662,000 Liabilities: Current Liabilities Trade Payables 195,000 225,000 Stockholders' Equity: Common Stock $1 par value 825,000 883,000 Retained Earnings 509,000 554,000 Total SHE 1.334.000 1.437,000 Total Liabilities and SHE 1.529,000 1.662,000 The Finance Director has expressed concern at the increase in Inventories and Trade Receivables levels. Required: (a) Show, by using the data given, how you would calculate ratios that could be used to measure Inventories and Trade Receivables levels during last and this year, comment on Profit Margin for both years; (2 marks) (b) Calculate the Operating Cash Cycle and do your comments; (1 marks) (c) State what caused a change (Increase or Decrease) in Cash balance, making a Statement of Sources and Uses of Cash; (1 mark) (d) Calculate Free Cash Flow for this year. You will need to make a Statement of Cash Flows for this year (at least the Net Cash Flows from Operating Activities, either the Indirect or the Direct method); what in your opinion has caused the negative (if any)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Accounting A Managerial Emphasis

Authors: Charles T. Horngren

3rd Edition

0131800345, 978-0131800342

More Books

Students also viewed these Accounting questions

Question

Tell me what you know about our organization and the position.

Answered: 1 week ago