Determine stock turnover, Financial Management

Assignment Help:

a)

 

Year 2

Year 1

 

Stock turnover

(350/500) * 365 =

255.5 days

(250/450) * 365 =

202.7 days

 

or

 

500/350 =

1.43 times

450/250 =

1.8 times

Debtor days

(150/1,000) * 365 =

55 days

(200/850) * 365 =

86 days

Creditor days

(300/500) * 365 =

219 days

(200/450)*365 =

162 days

b) The term 'efficiency position' should be defined. The efficiency position of JKL Ltd. can be judged by assessing the firm's efficiency ratios, i.e. its Stock turnover, creditor days and debtor days:

  • Stock turnover - Stock is taking longer to turnover (or turning over at a lower rate), i.e. there is less effectiveness
  • Debtor days - Debtors are, on average, paying much earlier suggesting that there is enhanced credit control
  • Creditor days - The firm is taking considerably longer to pay its creditors, which in the long run might dampen its relationship with suppliers
  • Overall then, it appear that the firm's liquidity position has perhaps deteriorated; although more data and information is needed to make any firm conclusions

c) There are three efficiency ratios in this question and hence any development in these should help to get better the overall efficiency position of the firm. Some examples are given below.

  • Stock turnover - Hold less stock, e.g. introduce a system of Just in Time (JIT) or introduce lean production to the production procedure.
  • Debtor Days - enhanced credit control, e.g. if credit control is too tight, then this could lead to a fall in sales as customers switch to rival firms offering privileged credit terms.
  • Creditor Days - Given the improved cash position of JKL Ltd. suppliers will perhaps query why the firm is taking so much longer to pay its debts. The ratio suggests that the credit period is rather generous particularly since the firm has sufficient working capital and liquidity to meet these amounts overdue. This could, therefore, dampen the relationship with its suppliers. Award up to 2 marks for each factor considered to progress the firm's efficiency position.

Related Discussions:- Determine stock turnover

par value, The face value of the debt security can be thought of as ...

The face value of the debt security can be thought of as the principal amount on which interest is paid by the issuer. It is the amount the issuer is willing to r

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Micro/Macro Question, You have been hired as an economic advisor to the Sou...

You have been hired as an economic advisor to the Southeastern Conference. As your first assignment they have asked you to identify three microeconomic and three macroeconomic issu

Benefits of niche and specialisation markets, a) Ltd. stands for ‘private l...

a) Ltd. stands for ‘private limited company', i.e. a business with limited liability with shares being issued only to friends and family with the approval of the board of directors

Classification of sources of finance, CLASSIFICATION OF SOURCES OF FINANCE ...

CLASSIFICATION OF SOURCES OF FINANCE In the market, there are several sources of finance, with conflicting risk characteristics and with conflicting cost structures. Numerous m

Explain the aspects of financing decision, Explain the aspects of financing...

Explain the aspects of financing decision The financing decision covers two interrelated aspects: (1) capital structure theory (2) capital structure decision.

What are the specefic control procedures of benchmarking, What are the spec...

What are the specefic control procedures of benchmarking Specific control procedures must be in place which include: O Organisational structure (clear lines of responsibilit

Social assistance program for the elderly, Social Assistance Program for th...

Social Assistance Program for the Elderly For the elderly destitutes, the Central and many State Governments have designed several social assistance programs. Under the nationa

Features of government securities, Features of government securities: ...

Features of government securities: Issuers The government securities are issued by the central government, state governments, and semi-government authorities like municipa

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd