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Working capital cycle

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Working capital cycle

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by AvatarJohn Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 12, 2021 at 3:31 am #631271
    AvatarNikitagarwal
    Participant
    • Topics: 154
    • Replies: 147
    • ☆☆☆

    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?

    August 12, 2021 at 8:59 am #631301
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    Inventory is an asset whereas payables are a liability, so you cannot add the 10 days and the 5 days together 🙂

    August 12, 2021 at 4:08 pm #631352
    AvatarNikitagarwal
    Participant
    • Topics: 154
    • Replies: 147
    • ☆☆☆

    got it now… such a silly question , thanks for clearing it up!

    August 12, 2021 at 4:35 pm #631371
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Working capital cycle’ is closed to new replies.

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