Question 2c
The current assets and current liabilities of CSZ Co at the end of March 2014 are as follows:
| $000 | $000 | |
| Inventory | 5,700 | |
| Trade recievables | 6,575 | 12,275 |
| Trade payables | 2,137 | |
| Overdraft | 4,682 | 6,819 |
| Net current assets | 5,456 |
For the year to end of March 2014, CSZ Co had domestic and foreign sales of $40 million, all on credit, while cost of sales was $26 million. Trade payables related to both domestic and foreign suppliers.
For the year to end of March 2015, CSZ 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.
CSZ Co also plans to achieve the following target working capital ratio values for the year to the end of March 2015:
| Inventory days: | 60 days |
| Trade receivables: | 75 days |
| Trade payables: | 5 days |
| Current Ratio: | 1.4 days |
Required:
(c)Analyse and compare the current asset and current liability positions for March 2014 and March 2015, and discuss how the working capital financing policy of CSZ Co would have changed.(8 marks)