In: Finance
(i) The following information is extracted from the financial statements of XERO
Limited:
Cash $677,423 Accounts Payable $1,721,669
Accounts Receivable $1,845,113 Notes Payable $2,113,345
Inventories $1,312,478
Total Current Assets $3,835,014 Total Current Liabilities $3,835,014
Net Sales $9,912,332
Cost $5,947,399
(a) Briefly explain what you understand by the term ‘operating cycle’. (1 mark)
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(b) What is the operating cycle for XERO Limited?
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(c) What can you say about XERO Limited’s accounts receivable and inventory
management if it is known that the industry average operating cycle is 72 days? (1
mark)
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(d) Briefly explain what you understand by the ‘cash conversion cycle’. (1 mark)
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(e) What is the cash conversion cycle for XERO Limited? (1 mark)
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(f) What can you say about XERO Limited’s cash conversion cycle if it is known that
the industry average cash conversion cycle is 42 days? (1 mark)
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(ii) The current ratio and net working capital are good predictors of a firm's
ability to meet its short-term obligations. Do you agree or disagree? Provide
your rationale.