Financial management and control Essay

3623 Words Dec 31st, 2013 15 Pages
TABLE OF CONTENT
1. Part A: Solvent Plc
Table 1: Summary of Differences in two years of Financial Ratios 2
Calculation of Working Capital Cycle (days) 2
Performance Analysis 3-4

2. Part B: Mega Plc
Question 1 5
Question 2 6
Question 3 7
Question 4 7

3. Part C: Brothers Ltd
Question 1
a) Payback Period Calculations 8
b) Accounting Rate of Return (ARR) 8
c) The Net present Value 8
d) The Internal Rate of Return (IRR) 9
Question 2 9
4. Part D
Question A 10 – 11
Question B 11 – 12

5. Reference
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As because of the poor liquidity problem, the company’s cash reserve has dropped by £100, 000 from 2010 to 2011.

As in debtors collection, we had see an increased of bad debts from £300,000 to £700,000, an increase of 43% in just one year from 2010 to 2011, there is an increased of days in debtors collection from 83 days to 130 days. The longer the day for debtor’s collection, it shows that company is a poor payer, and will lead to a poor reputation to all the shareholders and stakeholders.

Based on the calculation of working capital cycle in 2010, Solvent Plc is having a negative working capital cycle; a negative working capital indicates that the company is able to manage efficiently in their business with low inventory and receivables, it also mean the company able to sell off their inventory and also recall many receivables before they need to meet with their financial obligations. On the other hand in 2011, a major increase of 61 days of working capital cycle for Solvent Plc from -41 days to 20 days, this has indicated that Solvent Plc is facing a troublesome financial issue.

Liquidity

Liquidity ratio is being utilized to determine a company’s capability to meets its short-term financial obligations or short-term debt. Many investors would look into this piece of information as this reflect their ability to payback their loan or any other financial
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