Working capital mini qs, Financial Management

Assignment Help:

Q. Working capital mini Qs?

During January 20X4, Gazza Ltd made credit sales of £30,000 that have a 25% mark up. It also purchased £20,000 of inventories on credit.

Calculate by how much the working capital will decrease or increase as a result of above transactions?

Tuffy Ltd has an annual turnover of £18m on which it earns a marginof 20%. All sales and purchases are made on credit and it has a policy of sustaining the following levels of inventories, trade receivables and payables throughout the year.

Inventory                    £2 million

Trade receivable          £5 million

Trade payable              £2.5 million

Calculate Tuffy Ltd.'s cash cycle to the nearest day?

Solution:

Working capital mini Q's

Firstly note the difference between a marginand a mark-up

Mark-up= 100% + 25% = 125%   Profit = (25 / 125)   Cost = 100 / 125

Margin = 75% + 25% = 100%   Profit = (25 / 100) Cost = 75 / 100

1                                                                                  Effect on WC

Increase in trade receivables                                       £30,000

Increase in trade payables                                           (£20,000)

Inventories -increase due to purchases                       £20,000

Inventories -Decrease because of sales (i.e.COS)

{30,000 x 100 / 125}                                                  (£24,000)

Net effect on WC -increase                                        £ 6,000

2 Cash cycle = inventory days + trade receivable days -trade payable days

Inventory days = (Average inventory/Cost of sales) x365

Cost of sales = £18 million x 0.8 = £14.4 million

Inventory days                        = £2 / £14.4 x 365      = 51 days

Trade receivable days             = Trade receivable / sales x 365

= £5 / £18 x 365                      = 101 days

Trade payable days                 = Trade payable / COS x 365

= £2.5m / £14.4 x 365             = (63) days

Cash cycle                               = 89 days

89 days is the average time from the payment of a supplier to the receipt from a customer.


Related Discussions:- Working capital mini qs

What was the value of each person investment, Joe and Sam each invested $20...

Joe and Sam each invested $20,000 in the stock market. Joe's investment increased in value by 5% per year for 10 years. Sam's investment decreased in value by 5% for 5 years and th

Explain that the u.s. imports more than it exports, Comment on the subseque...

Comment on the subsequent statement: “Since the U.S. imports more than it exports, it is essential for the U.S. to import capital from foreign countries to finance its current acco

Profitability index method - benefit cost ratio, Do you guys provide Profit...

Do you guys provide Profitability Index Method assignment help? I need writing a report on Profitability Index Method and it is about 2000 words. Let me know. I need to buy your so

Cost of capital.., your firm is considering its household products division...

your firm is considering its household products division. you identify John Lewis as a firm with comparable investments. suppose J.L. equity has a market capitalization of 150 bill

Define defined benefit and defined contribution pension plan, Compare and c...

Compare and contrast a defined benefit and a defined contribution pension plan. In a defined benefit plan, retirement benefits are defined by a formula that generally considers t

Name two patterns of cash flows for a share of common stock, Name two patte...

Name two patterns of cash flows for a share of common stock. How does the market define the value of the most common cash flow pattern for common stock? Cash flows for a share

Loan schedules - fixed vs floating, Consider a mortgage example to nance ...

Consider a mortgage example to nance the purchase of a house or flat. You may use a real example or create a ctitious one. Search for di erent types of mortgages currently on o e

Asset Securitization Structures (Excel help), #questAs an assistant vice pr...

#questAs an assistant vice president at a regional bank, your boss has tasked you to acquire $100 million of residential mortgages to be securitized in a pass-through MBS. There mu

Show the objectives of inventory management, Q. Show the Objectives of Inve...

Q. Show the Objectives of Inventory Management? Objectives of Inventory Management- The objectives of Inventory Management are: To maintain a adequate large size of inventor

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