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

Explain the country’s balance of payments data, Why would it be useful to e...

Why would it be useful to examine a country’s balance of payments data? Answer:  It would be helpful to observe a country’s BOP for at least two reasons. First, BOP offers detail

Return enhancement on investment, Return Enhancement can be explained...

Return Enhancement can be explained using following heads: Use of a Valuation Model: An investor having access to a bond valuation model can bu

Employee benefit plan, Employee Benefit Plan - Compensation arrangement, u...

Employee Benefit Plan - Compensation arrangement, usually in writing, used by employers in addition to wages or salary. Some plans like group term life insurance, medical insuranc

Corporation, Corporation - Form of doing business pursuant to a charter gra...

Corporation - Form of doing business pursuant to a charter granted by a state or federal government. Corporations mainly are characterized by the issuance of freely transferable CA

Agency relationship, what are the ten agency problems between shareholders ...

what are the ten agency problems between shareholders and auditors and their solutions

Financial control, Internal capital rationing is used by firms for exercisi...

Internal capital rationing is used by firms for exercising financial control. How does a firm achieve this?

Problem 1, You work for a small, for-profit health system. Your system is i...

You work for a small, for-profit health system. Your system is interested in acquiring a Critical Access Hospital (CAH) at a price of $65,000,000. The purchase would be made from r

Determine the example of future value of an annuity, Determine the example ...

Determine the example of Future Value of an Annuity An annual payment of 7000 $ is invested at 5% per annum compounded yearly. What will be the amount after 20 years? Solut

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