Reference no: EM133088813
Question 1 - Joanna Fisher, the managing director of Faloye Ltd, is concerned that the company is not managing its working capital efficiently. She has sent you an email asking for your assistance in identifying any problems area(s) and for your suggestions as to how these can be remedied.
You have calculated the following ratios in respect of Faloye Ltd's latest financial statements and have obtained the industry average for each of these comparative purposes.
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Faloye Ltd
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Industry average
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Current ratio
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1.6:1
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2.1:1
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Inventory holding period
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37 days
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35 days
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Trade receivables collection period
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38 days
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39 days
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Trade payables payment period
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53 days
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1 days
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Required - Prepare a report to Joanna that includes:
(A) Comments on whether Faloye Ltd has performed better or worse, in respect of the calculated ratios.
(B) Three suggestions as to how the working capital of Faloye Ltd could be more effectively managed.
(C) Discuss three limitations of ratio analysis.
Question 2 - Meadow Ltd has a loss before tax of £11,500 for the year and the statement of financial position and statement of comprehensive income show the following;
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£
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Depreciation
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8,000
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Finance costs
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1,500
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Decrease in inventories
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4,000
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Increase in trade receivables
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5,000
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Decrease in trade payables
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3,000
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Required - Calculate the cash generated by operations for the year?