Reference no: EM13341190
Management of working capital and business structures
Hawkeye Ltd is concerned about its management of working capital and has provided you with the following ratios calculated by its accountant:
2010 2011 2012 2013
Receivables turnover 8.7 8.1 8.0 7.5
Inventory turnover 6.5 6.3 6.0 5.9
Payables turnover 7.6 8 8.1 8.5
Also, you have a friend who has bought $500,000 of shares in Xander Ltd.
For this purchase, your friend was only required to pay 20% of the full purchaseof $500,000. The remaining 80% is to be paid at a later date, yet to be settled by Xander Ltd.
Sadly, one week after your friend makes the first payment, Xander Ltd is sued. The case goes to trial immediately due to the serious nature of the circumstances. The legal matter is clear, and within a week the case is finished.
Xander Ltd loses the case and is fined $20 million dollars, which it must pay within the next 28 days.
This fine causes Xander Ltd to declare that it is bankrupt.
Your friend has been following this case in the news media, and has become very worried, and seeks your advice.
(a) Calculate the cash cycle period for each of the four years for Hawkeye Ltd
(b) Comment on the management of working capital by Hawkeye Ltd over the past four years. (maximum 150 words)
(c) Explain how much money (if any at all), Xander Ltd can demand from your friend.
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Management of working capital and business structures
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