On the 15th of December 2020, Great Moments (Pty) (Ltd) is planning its working capital management for January 2021. Beginning January 2021, the predicted financial information is as follows:

Item Value (R) Inventory 4 550 000

Trade receivables 4 083 500

Trade payables 1 867 000

Overdraft 2 402 500

For 2020, the company expects to generate sales revenue worth R3.5-million. It sells all its products on credit. The following are the monthly sales figures for the remaining months of the year, and January 2021:

Month and Sales Value (R)

November 2020 (actual) 2 708 750

December 2020 (predicted) 3 000 000

January 2021 (predicted) 3 500 000

Great Moments (Pty) (Ltd) provides you with the following information also:

• 40% profit margin policy;

• Offers 30 days credit and uses a 365-day year;

• 60% of its customers settle in the month after purchase;

• Remaining customers take an additional month of credit;

• Inventory is expected to increase by R522,500 during the month of January 2021;

• Plans to settle 70% of its trade payables in the month of January 2021 and the balance at the end of February 2021;

• All the company’s suppliers require settlement within 30 days;

• Purchases on credit in the month of January 2021 are forecast as R2,500,000;

• Interest on overdraft worth R700,000 is due in January 2021;

• The finance manager forecast that January’s operating cash outflows to amount to R1,465,000; and

• The finance manager informs you that Great Moments (Pty) (Ltd) has no cash and depends on a bank overdraft. The overdraft is used to finance daily operations. The company has no plans to raise long-term funds in the month of January 2021.

a. Calculate:

i. Great Moments (Pty) Ltd’s cash operating cycle at the beginning of January 2021. Round off days to nearest day. (6 marks)

ii. Forecast overdraft required at the end of January 2021. (18 marks)

iii. Great Moments (Pty) Ltd’s current ratios at the beginning and end of January 2021. (6 marks)

b. Appraise and recommend five ways or strategies to manage trade receivables you would provide to the Great Moments (Pty) Ltd’s finance manager. (10 marks)