Over the past decade, the Pixie Company has expanded its activities by the profitable reinvestment of retained earnings. But despite a significant increase in turnover and a history of Balance Sheet solvency, it is now beset by liquidity problems. The CEO Mr. Francis has convened a Board Meeting to establish what is wrong with its working capital position. The following snapshot data taken from the company accounts have been itemized as a basis for discussion. Last Year This Year (GH¢ Million) (GH¢ Million) Raw Materials 200 270 Work in progress 140 180 Finished goods 160 240 Debtors 320 480 Creditors 160 195 Sales 1,600 2,000 Purchases 960 1,300 Cost of goods sold 1,400 1,800 

Required: 

a) Reformulate the data, using ratio analysis and the derivation of the company’s operating and financing (cash conversion) cycles to interpret any possible mismanagement of working capital. Justify your response with an explanation of the ratios calculated. (15 marks) b) Critically evaluate alternative strategic options for how the company’s future liquidity position might be improved. (10 marks

Answer rating: 100% (QA)

a Raw Materials 200 Work in progress 140 Finished goods 160 Debtors 320 Creditors 160 Sales 1600 Pur... View the full answer