Determine stock turnover, Financial Management

Assignment Help:

a)

 

Year 2

Year 1

 

Stock turnover

(350/500) * 365 =

255.5 days

(250/450) * 365 =

202.7 days

 

or

 

500/350 =

1.43 times

450/250 =

1.8 times

Debtor days

(150/1,000) * 365 =

55 days

(200/850) * 365 =

86 days

Creditor days

(300/500) * 365 =

219 days

(200/450)*365 =

162 days

b) The term 'efficiency position' should be defined. The efficiency position of JKL Ltd. can be judged by assessing the firm's efficiency ratios, i.e. its Stock turnover, creditor days and debtor days:

  • Stock turnover - Stock is taking longer to turnover (or turning over at a lower rate), i.e. there is less effectiveness
  • Debtor days - Debtors are, on average, paying much earlier suggesting that there is enhanced credit control
  • Creditor days - The firm is taking considerably longer to pay its creditors, which in the long run might dampen its relationship with suppliers
  • Overall then, it appear that the firm's liquidity position has perhaps deteriorated; although more data and information is needed to make any firm conclusions

c) There are three efficiency ratios in this question and hence any development in these should help to get better the overall efficiency position of the firm. Some examples are given below.

  • Stock turnover - Hold less stock, e.g. introduce a system of Just in Time (JIT) or introduce lean production to the production procedure.
  • Debtor Days - enhanced credit control, e.g. if credit control is too tight, then this could lead to a fall in sales as customers switch to rival firms offering privileged credit terms.
  • Creditor Days - Given the improved cash position of JKL Ltd. suppliers will perhaps query why the firm is taking so much longer to pay its debts. The ratio suggests that the credit period is rather generous particularly since the firm has sufficient working capital and liquidity to meet these amounts overdue. This could, therefore, dampen the relationship with its suppliers. Award up to 2 marks for each factor considered to progress the firm's efficiency position.

Related Discussions:- Determine stock turnover

#title.OPERATING CYCLE, DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEG...

DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.

How can funds be raised, How can funds be raised Funds are raised from ...

How can funds be raised Funds are raised from financial markets. Financial markets is a general term used todenote markets where financial securities are teat. These markets in

Duration and convexity of mortgage backed security, Duration an...

Duration and Convexity of MBS A graph decpicting the price of the security under study and the interest rates helps in assessing the duratio

Role of Trustee in Pension Fund, Role of Trustee in Pension Fund: Trust...

Role of Trustee in Pension Fund: Trustees are people in control of long-term asset allocation of a pension scheme. Whatever benchmark they set will, as we shall see, influence

Approaches to valuing asset-backed securities, There are two approach...

There are two approaches to value Asset-Backed Securities. They are: Zero-Volatility Spread (Z-spread) Approach. Option-Adjusted Spread

Discuss the importance of dividend decisions, 1.   Discuss the various tech...

1.   Discuss the various techniques of inventory management for efficient working capital management. 2.   Discuss the importance of dividend decisions. What is MM theory of div

Coefficient of determination, Coefficient of Determination As before, ...

Coefficient of Determination As before, Where, We can show that TSS = RSS + ESS We can also show that F = is an F distr

Explain net present value method, Q. Explain Net Present Value Method? ...

Q. Explain Net Present Value Method? Net Present Value (NPV) Method: - This process measures the Present value of returns per rupee invested. In this method present value of

Working capital cycle, Q. Working capital cycle? In a manufacturing con...

Q. Working capital cycle? In a manufacturing concern the working capital cycle is start with the purchase of the raw material and ends with the realization of the cash from the

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