Mile Co is looking to change its working capital policy to match the rest of the industry. The following results
are expected for the coming year:
$'000
Revenue 20,500
Cost of sales (12,800)
Gross profit 7,700
Revenue and cost of sales can be assumed to be spread evenly throughout the year. The working capital
ratios of Mile Co, compared with the industry, are as follows:
Mile Co Industry
Receivable days 50 42
Inventory days 45 35
Payable days 40 35
Assume there are 365 days in each year.
If Mile Co matches its working capital cycle with the industry, what will be the decrease in its net
working capital?
while calculating net inventory and payable effect shouldnt it be 15/365*12800 ?
because 10 days are to be reduced from invenotry and 5 days from payables?
Ask the Tutor ACCA FM
Working capital cycle
Inventory is an asset whereas payables are a liability, so you cannot add the 10 days and the 5 days together :-)
got it now... such a silly question , thanks for clearing it up!
You are welcome :-)
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