Question

Summarised extract from financial statements of M and B limited ending 28 feb 2012,2103 and 2014

	2012	2013	2014
Cash sales	7200	5760	7920
Credit sales	57600	61200	62160
Cash purchases	8640	13680	10800
Credit purchases	41760	44280	46800
Stock inventory	8640	9720	11880
Cost of goods sold	36000	43200	44640
Debtors(accounts recievable)	11520	12240	13680
Credtors accounts payable	6480	7920	9540
Cash on hand		3000	36000

365 days in year

Calculate for 2014

Accounts receivable days outstanding

Inventory days outstanding

Account payable days

Current ratio

Quick ratio

list possible actions of management to make improvements

Answer 1

1	ACCOUNTS RECEIVABLE DAYS OUTSTANDING
	(AVERAGE ACCOUNTS RECEIVABLE/CREDIT SALE) * 365 DAYS
	AVERAGE ACCOUNTS RECEIVABLE	(13680+12240)/2
		12960
		(12960 / 62160)*365
		76.1003861
	APPROX	76 DAYS
2	INVENTORY DAYS OUTSTANDING
	(AVERAGE INVENTORY/COST OF GOODS SOLD)*365
	AVERAGE INVENTORY	(11880+9720)/2
		10800
	COST OF GOODS SOLD	44640
		(10800/44640)*365
		88.30645161
	APPROX	89 DAYS
3	ACCOUNTS PAYABLE DAYS
	(AVERAGE TRADE PAYABLE / CREDIT PURCHASES)*365
	AVERAGE TRADE PAYABLE	(9540+7920)/2
		8730
	CREDIT PURCHASES	46800
		(8730/46800)*365
		68.08653846
	APPROX	68 DAYS
4	CURRENT RATIO
	(CURRENT ASSETS / CURRENT LIABILITY)
	CURRENT ASSETS
	INVENTORY	11880
	DEBTORS	13680
	CASH ON HAND	36000
	TOTAL	61560
	CURRENT LIABILITY
	CREDITORS	9540
	CURRENT RATIO	61560 / 9540
		6.452830189
5	QUICK RATIO
	(CURRENT ASSETS - INVENTORY)/CURRENT LIABILITY	(61560-11880)/9540
		5.20754717
-	CURRENT RATIO AND QUICK RATIO SHOWS THE LIQUIDITY AT GOOD LEVEL
-	CASH ON HAND IS MORE THAN REQUIRED LEVEL, IT CAN BE INVESTED IN VERY SHORT TERM INVESTMENTS.
-	ACCOUNTS RECEIVABLE DAYS OUTSTANDING ARE MORE THAN ACCOUNTS PAYABLE DAYS OUTSTANDING, WHICH IS NOT PROPER POLICY.
-	ACCOUNTS RECEIVABLE DAYS OUTSTANDING SHALL BE LESS THAN THE ACCOUNTS PAYABLE DAYS OUTSTANDING
-	FIRST COLLECT THE FUNDS FROM CUSTOMER AND THEN USE THAT FUND TO PAY THE CREDITORS. THIS WILL REDUCE THE REQUIREMENT OF CASH ON HAND AND STILL LIQUIDITY WILL BE MAINTAINED