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

Risk of the complete portfolio, (a) Presume we have a portfolio of n name...

(a) Presume we have a portfolio of n names with some default correlation ρ . The risk of the complete portfolio moves according to the change in default correlation. Alternative

Liquidity risk, An investor, who wants to sell a bond even before it ...

An investor, who wants to sell a bond even before it reaches its maturity date, would be concerned as to whether he will receive a price that is close to the true

What is financing decision, What is Financing Decision Provision of ...

What is Financing Decision Provision of funds required at proper time is one of theprimary tasks of finance manager. Identification of the sources, deciding whichtypes of fu

Government bonds, Government securities are the most important and un...

Government securities are the most important and unique financial instruments in the financial markets of any economy. Government of India Securities (GOI Sec) in

Cash flow analysis, Cash flow analysis helps an analyst to identify ...

Cash flow analysis helps an analyst to identify certain financial difficulties which cannot be identified using the above ratios.  A firm may be shown

Financial management, Financial Management: Financial management is, in...

Financial Management: Financial management is, in its most basic interpretation, the management of costs against revenue. Other management initiatives, such as marketing, are d

What do you mean by average cost and marginal cost, Q. What do you mean by ...

Q. What do you mean by Average Cost and Marginal cost? Average Cost and Marginal cost: the average cost is the combined cost as explain above, but for the difference in the for

Financial planning assignment, School of Business BUACC1521 Personal Financ...

School of Business BUACC1521 Personal Financial Planning ASSIGNMENT 1. General information As detailed in the Course Description, the assignment constitutes 30% of the tota

How is present value affected by change in the discount rate, How is presen...

How is present value affected by a change in the discount rate? Present value is inversely associated to the discount rate.  In other words current value moves in the opposite

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