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Chapter 7
Question 3
Working capital ratios
A company has the following figures from its most recent accounts:
Receivables $13.7m
Trade payables $7.5m
Inventory (raw materials) $2.1m
Inventory (WIP) $1.1m
Inventory (finished goods) $5.9m
Sales (90% on credit) $105.9m
Materials purchases (100% on credit) $77.7m
Cost of sales $80.5m
Calculate the relevant working capital ratios. Assume 365 days in a year and
round calculations to the nearest day.
Raw material inventory holding period: $2.1m/$77.7m × 365 = 10 days
WIP inventory holding period: $1.1m/$80.5m × 365 = 5 days
Finished goods inventory holding period: $5.9m/$80.5m × 365 = 27 days
Finished goods inventory turnover: $80.5m/$5.9m = 13.6 times
Receivables days: $13.7m/($105.9m × 90%) × 365 = 52 days
Payables days: $7.5m/$77.7m × 365 = 35 days
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