1. Given the information below evaluate the working capital effectiveness of company A based on its...

Transcribed Image Text:

1. Given the information below evaluate the working capital effectiveness of company A based on its operating and cash conversion cycles as compared to the working capital effectiveness of its peer company A. (Note: Compare the liquidity and liquidity needs for Company A and Company B for FY2). Cash and cash equivalents Inventory Receivables Accounts payable Revenues Cost of goods sold Current ratio Debt/Assets Turnover of cash & securities DSO (days) Inventory turnover Fixed Assets. turnover Total Assets turnover Company A (Tshs Mill) Company B (Tshs Mill) FY2 FYI FY2 200 110 200 500 450 900 600 625 1,000 400 350 600 Profit margin ROE 3,000 2,500 950 750 SKL 1.75x 58.76% 16.67x 45.63 4.82x 11.35x 2.08x 2.07% 10.45% 6,000 5,200 2. Consider the following information for the SKL company and evaluate company's working capital policy (relative to the industry). Is SKL conservative/aggressive or just inefficient? Industrial Average 2,25x 50.00% 22.22x 32.00 7.00x 12.00x 3.00x 3.50% 21.00% FYI 300 900 1,100 825 6,000 5.050 3. KSC Ltd has customers in Mwanza that remit about 1,000 cheques a year. The average cheque is for Tshs 10 million. Lake Zone cheques currently take an average of four days from the time they are mailed to clear into KSC's Dar es Salaam account. For a fee of Tshs 8 million a year plus Tshs 5,000 per cheque a Mwanza based bank has offered KSC an arrangement that is expected to reduce the clearing cheque time to one day. Is the bank's proposal a good deal for KSC if its cost of capital is 20%? 1. Given the information below evaluate the working capital effectiveness of company A based on its operating and cash conversion cycles as compared to the working capital effectiveness of its peer company A. (Note: Compare the liquidity and liquidity needs for Company A and Company B for FY2). Cash and cash equivalents Inventory Receivables Accounts payable Revenues Cost of goods sold Current ratio Debt/Assets Turnover of cash & securities DSO (days) Inventory turnover Fixed Assets. turnover Total Assets turnover Company A (Tshs Mill) Company B (Tshs Mill) FY2 FYI FY2 200 110 200 500 450 900 600 625 1,000 400 350 600 Profit margin ROE 3,000 2,500 950 750 SKL 1.75x 58.76% 16.67x 45.63 4.82x 11.35x 2.08x 2.07% 10.45% 6,000 5,200 2. Consider the following information for the SKL company and evaluate company's working capital policy (relative to the industry). Is SKL conservative/aggressive or just inefficient? Industrial Average 2,25x 50.00% 22.22x 32.00 7.00x 12.00x 3.00x 3.50% 21.00% FYI 300 900 1,100 825 6,000 5.050 3. KSC Ltd has customers in Mwanza that remit about 1,000 cheques a year. The average cheque is for Tshs 10 million. Lake Zone cheques currently take an average of four days from the time they are mailed to clear into KSC's Dar es Salaam account. For a fee of Tshs 8 million a year plus Tshs 5,000 per cheque a Mwanza based bank has offered KSC an arrangement that is expected to reduce the clearing cheque time to one day. Is the bank's proposal a good deal for KSC if its cost of capital is 20%?

Answer rating: 100% (QA)

1 2 Working capital policy of SKL is inefficient Industry current ratio is 225 whereas SKL ratio is 175 lower than industry average Turnover of cash s... View the full answer