Part B – Case Study

Assess Financial Risk Exposure and Working Capital

Management

Company A

You are given the financial statements of Company A as follow:

Inventory turnover= costs sales/ average inventory

Average invrntory =( inventory 2015 + inventory 2014)/ 2

Inventory turnover = 450000 / 115000 = 3.91

Days in inventory ratio= 365 Days / inventory turnover ratio

=365/3.91 = 93 Days

This information show us that the other business working in the same industry are having inventory in
abouit 20 nwhile the company A is taken 93 days to restock and check inventory. It measn the business
has some deficient manner to review their products and they maight not how inmportant it can be to be
more competitive with other business.

Account receivable turnover ratio= Net credit dsales / average net account receivable

Average net account receivable = account receibable 2015 + 2014

=(150000+100000)/2 =125000

Account receivable turnover ratio = 940000/ 125000 = 7.52

Days sales in receivables = 365 / account receivables turnover ratio

= 365/ 7.52= 49

For the sales in receivables we can see a big difference because the data before show us receivables
turnover ratio of 49 days comparate with 25 days industry average in the market. In this order we can
conclude that this business needs to inprove the amount of days receivables because for the business I n
general its very important to have collect the money from the customers. Its very important to incentive
the costumers with new offers to incentuive them to pay faster and punctual
Debt to equity ratio= total liabilities / total equity

=500000 / 450000 = 1.111

Current ratio= current assests / current liabilities

=310000/ 150000 = 2.06

Times interest earned ratio = ( profit before tax = interest expenses) / interest expense

(105000 + 50000) / 50000 = 3.1

COMPANY B

1. Working capital management

Working caspital= current assets- current liabilities

2014 2015
17753700- 8900000 20251000-9500000
=9553000 =10751000

2. Working capital turnover= sales / operating working capital

2014 2015
36742308/ 9553000 33596875/ 10751000

=3.84 =3.12