With ABC in 2014 taking on average 64 days to sell its stock, it achieved a 5.7 times inventory turnover ratio (365 days divided by 64) which can be considered an appropriate for the company with similar nature of the business.
Days debtors has been decreasing by one day on year by year basis since 2012. This would suggest that the company is getting better in collecting its debts. Section k in notes 1 of ABC’s annual report 2014 stipulates that ‘trade receivables are due for settlement no more than 30 to 45 days from the end of the month invoice’. With a rule of thumb suggesting that the collection period should not exceed 1.3of the regular payment period it seems that 43 days period is within the lower range of this benchmark (30 days*1.3 =39 days, 45 days *1.3 = 59 days). …show more content…
With liquidity rates going up and days inventory and days debtors falling it seems that ABC is using its creditors efficiently which indicates effective management and a lower cost structure.*2012 calculations are based on 356 days ( a leap year)
a) Evaluation
Days inventory decreased by 2 days in FY2014 after staying level a year earlier. As this rate stipulates the time it takes the merchandise to move through the business, a reduction can suggest that the operational improvements and vertical integration strategies supported by increasing revenues helped the business to achieve the better result.
Table 7 ABC’s working capital management efficiency
Days debtors has been decreasing by one day on year by year basis since 2012. This would suggest that the company is getting better in collecting its debts. Section k in notes 1 of ABC’s annual report 2014 stipulates that ‘trade receivables are due for settlement no more than 30 to 45 days from the end of the month invoice’. With a rule of thumb suggesting that the collection period should not exceed 1.3of the regular payment period it seems that 43 days period is within the lower range of this benchmark (30 days*1.3 =39 days, 45 days *1.3 = 59 days). …show more content…
With liquidity rates going up and days inventory and days debtors falling it seems that ABC is using its creditors efficiently which indicates effective management and a lower cost structure.*2012 calculations are based on 356 days ( a leap year)
a) Evaluation
Days inventory decreased by 2 days in FY2014 after staying level a year earlier. As this rate stipulates the time it takes the merchandise to move through the business, a reduction can suggest that the operational improvements and vertical integration strategies supported by increasing revenues helped the business to achieve the better result.
Table 7 ABC’s working capital management efficiency