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

Define discounting the equity cash flow, Which of these two methods is bett...

Which of these two methods is better: discounting the Equity Cash Flow or discounting the Free Cash Flow? The results we get by discounting the Equity Cash Flow and the Free Ca

Find the expected dividend - stocks, You are considering the purchase of so...

You are considering the purchase of some shares of PECO Inc. common stock which paid a dividend of $1.50 today. You expect the dividend to grow at the rate of 7% per year for the n

What interest rate is required to yield a balance, You invest $1,000 at an ...

You invest $1,000 at an annual interest rate of 5% compounded continuously. How much is your balance after 8.5 years?  How long will it take you to accrue a balance of $4,000? What

What is institutional finance, What is Institutional Finance A natio...

What is Institutional Finance A nation's economic structure comprise a number offinancial institutions, like banks, pension funds, insurance companies, creditunions. These i

Compounding technique for calculating time value of money, COMPOUNDING TECH...

COMPOUNDING TECHNIQUE is the method of calculating the future values of cash flows and involves calculating compound interest.  Under this process, interest is compounded when the

Which parameter better calculates value creation, Which parameter better ca...

Which parameter better calculates value creation; the EVA (Economic Value Added), the economic profit or the CVA (Cash Value Added)? The EVA (Economic Value Added) is the profi

Buying and selling securities, Buying and Selling Securities One of the k...

Buying and Selling Securities One of the key features that may occur while investing in financial markets is that sometimes investors overlook the essential factors they should c

Tokyo stock exchange, Tokyo Stock Exchange In the 1870s, a securities s...

Tokyo Stock Exchange In the 1870s, a securities system was introduced in Japan and public bond negotiations began. This resulted in a demand for public trading institution, whi

Limitation of weighted average cost of the capital, Q. Limitation of weight...

Q. Limitation of weighted average cost of the capital? 1) Determine the Weight; the first and foremost difficulty in computing the average cost is to an easy job. This type of

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