The managing director of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year. He shows you the following information:
Sparkrite Ltd: Income statements for years ended 30 September last year and this year and statements of financial position as of 30 September last year and this year. (Please see attachments)
The finance director has expressed concern at the increase in inventories and trade receivable levels and needs advice on how to better manage the company working capital.
(a) Show the managing director, by using the data given, how you would calculate ratios that could be used to measure inventories and trade receivable levels during last year and this year.
(b) Discuss the ways in which the management of Sparkrite Ltd could exercise control over:
(i) Inventory levels
(ii) Trade receivables levels.
I have reproduced the financial documents in an excel worksheet. This ...
Ratios and calculations to measure inventories and trade receivables over two sequential years. Comments and discussion of the results. Comments on the control of inventory and trade receivables.
CEO meeting: operating budget, capital budget, working capital position, ratios, debt
You and the VP of Accounting are meeting with the CFO next week to discuss critical areas of the operating budget for next year and the capital budget as well. Of particular concern to the CFO is the company's working capital position, the impact of some short-term notes that the company must pay-off next year, the company's current ratio, and determining how to finance a major capital project (construction of a new production plant).
Assume you are organizing your thoughts for the meeting with the VP of Accounting in preparation to meet with the CFO later. Go to the Discussion Board and discuss the following topics, giving examples:
(1) how working capital can impact a company's finances;
(2) what the company can do to handle short-term debt that is coming due;
(3) explain current ratio, discuss its implications, and describe a good current ratio; and
(4) describe briefly how businesses make capital budgeting decisions.