The current assets and current liabilities of Clough Co at the end of March 20X4 are...

 

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The current assets and current liabilities of Clough Co at the end of March 20X4 are as follows: Sm Sm Inventory Trade receivables Trade payables Overdraft 5.5 6.6 2.1 4.7 Inventory days: 65 days Trade receivables days: 70 days Trade payables days: 50 days Current ratio: 1-4 times Required (a) 12.1 Net current assets For the year to end of March 20X4, Clough Co had domestic sales of $40 million, all on credit while cost of sales was $25 million. (b) 6.8 5.3 For the year to end of March 20X5, Clough Co has forecast that credit sales will remain at $40 million while cost of sales will fall to 60% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the company's overdraft Clough Co also plans to achieve the following targetworking capital ratio values for the year to the end of March 20X5: Calculate the working capital cycle (cash collection cycle) of Clough Co at the end of March 20X4 and discuss whether a working capital cycle should be positive or negative. (6 marks) Calculate the target quick ratio (acid test ratio) and the target ratio of sales to networking capital of Clough Co at the end of March 20X5. (4 marks) The current assets and current liabilities of Clough Co at the end of March 20X4 are as follows: Sm Sm Inventory Trade receivables Trade payables Overdraft 5.5 6.6 2.1 4.7 Inventory days: 65 days Trade receivables days: 70 days Trade payables days: 50 days Current ratio: 1-4 times Required (a) 12.1 Net current assets For the year to end of March 20X4, Clough Co had domestic sales of $40 million, all on credit while cost of sales was $25 million. (b) 6.8 5.3 For the year to end of March 20X5, Clough Co has forecast that credit sales will remain at $40 million while cost of sales will fall to 60% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the company's overdraft Clough Co also plans to achieve the following targetworking capital ratio values for the year to the end of March 20X5: Calculate the working capital cycle (cash collection cycle) of Clough Co at the end of March 20X4 and discuss whether a working capital cycle should be positive or negative. (6 marks) Calculate the target quick ratio (acid test ratio) and the target ratio of sales to networking capital of Clough Co at the end of March 20X5. (4 marks)

Answer rating: 100% (QA)

a The working capital cycle of Clough Co at the end of March 20X4 is positive meaning that the compa... View the full answer