IN Projects Limited commenced operations at the beginning of the 2019 year. Although profitable, the business is experiencing cash flow problems. The financial director has approached you for advice in order to remedy this situation. The following amounts (US Dollars) were extracted from the records of the company:

	2019	2020	2021
Revenue	200 000	220 000	250 000
Costs	140 000	150 000	165 000
Profit before interest and tax	12 000	11 000	10 500
Accounts receivable	16 500	25 000	29 600
Accounts payable	13 000	14 700	17 000
Inventory	18 750	26 000	30 400
Bank/ (Overdraft)	4 000	(1000)	(2 000)

Required:

1. Determine the purpose of interpreting financial statements. (3)
2. Calculate the following ratios for each of the three (3) years:
   1. Accounts receivable collection period
   2. Inventory holding period
   3. Accounts payable payment period
   4. Current ratio
   5. Acid test ratio 
3. Comment on the company’s working capital management in light of the analysis undertaken in 1.2 above. 

Answer rating: 100% (QA)

1 The purpose of interpreting financial statements is to provide information ... View the full answer