EYESRUS are unable to meet their daily expenditure and their creditors are no longer willing to provide them with credit facilities. You have been asked to give your professional analysis on the company’s operations. Based on your discussion with their CEO, you have asked their accountant to see their financial statements for further analysis. You were told that the information has not yet been compiled and as such, the documents were unavailable.

a) Based on the above- mentioned information, identify and explain 4 possible reasons for the company’s financial distress.

After much delay and difficulty, you have finally received the documents and have found some alarming information. Some of the information is presented below

Based on data collected from the industry, you noted the Current Ratio was 5:1 with inventory turnover being 12 times. The industry’s Average payment Period was 36 days and its Average collection period 50 days.

b) With this new information, assess EYESRUS financial stability when compared to the industry.

c) What recommendations would you suggest and why might these proposals not be as effective as planned?
 

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Cash $200 000 Mortgage $2 000 000 Inventory $ 75 000 Short Term Bank Loan $ 80 000 Motor vehicle $120 000 Opening inventory $ 55 000 Debtors $340 000 Average payment period 29 days Creditors S 95 000 Average collection payment 75 days Sales $ 4 000 000 Gross Profit $ 1 750 000 Cash $200 000 Mortgage $2 000 000 Inventory $ 75 000 Short Term Bank Loan $ 80 000 Motor vehicle $120 000 Opening inventory $ 55 000 Debtors $340 000 Average payment period 29 days Creditors S 95 000 Average collection payment 75 days Sales $ 4 000 000 Gross Profit $ 1 750 000

Answer rating: 100% (QA)

A Based on the information following is the information following are the possible reasons EYERUS is ... View the full answer