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Discussion: Managing Working Capital

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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.

Required:
(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.

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Solution Summary

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.

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I have reproduced the financial documents in an excel worksheet. This ...

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