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Is current trade receivables management affecting company

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Reference no: EM132545471

Greenfields (Pty) Ltd is a retailer of animal feeds, fertilisers, pesticides and a wide range of related agricultural products. The company sells its products nationwide as well as to other SADEC countries. The company sells 60% of its products on credit and its credit terms to its customers are 30 days. The company purchases 70% of its products on credit from its suppliers and the suppliers' settlement agreement is 60 days.

The owners of the company are quite concerned about the liquidity position of the company. The accountant collected data and prepared the following table with information relating to the liquidity ratios and activity ratios for the company and the industry in which it operates:

Financial ratio                               Greenfields                    Agriculture industry

Current ratio                                    4.7                             4

Quick ratio                                      1.8                           3.5

Inventory turnover ratio                      5.2                           8.4

Average collection period                    75 days                 45 days

Average payment period                33 days                           55 days

You have been contracted by the managing director of the company to help her to diagnose any liquidity problems the company may have and to make recommendations to maintain adequate liquidity.

Required:

Question 1: Is current inventory management affecting the company's liquidity? If it is, then present three possible recommendations relating to the management of inventory to the managing director to address the liquidity problem.

Question 2: Is current trade receivables management affecting the company's liquidity? If it is, then present three recommendations relating to the management of trade receivables to the managing director to address the liquidity problem.

Question 3: Is current trade payables management affecting the company's liquidity? If it is, then present two recommendations relating to the management of trade payables to the managing director to address the liquidity problem.

Reference no: EM132545471

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