Required:Based on the information contained in the extracts of Bowdry Ltd's latest financialstatements, answer the questions below.(a) Give the formulas for calculating the following two working capital ratios:(i) inventory days.(ii) receivables collection period.(b) Calculate the inventory days and receivables collection period for BowdryLtd for 2021 and 2020 and show your workings. (Assume all sales andpurchases are made on credit. All calculations should be to whole days.)(c) (i) In the accounting period above, the payables payment ratio has goneup from 39 in 2020 to 41 days in 2021. Calculate the working capitalcycle for Bowdry Ltd for 2021 and 2020.(ii) Comment on the significance for Shepherd each of the ratios calculatedin (b) above as it considers whether to enter a long-term contract as asupplier to Bowdry Ltd.(d) A crucial solvency ratio for a trade creditor entering a long-term contract tosupply Bowdry Ltd is the interest cover. Give the formula for this ratio.(e) Calculate the interest cover for Bowdry Ltd for 2021 and 2020. All answersshould be to one decimal place.(f) (1) Comment on the significance of the ratio calculated in (e) above.(i) Provide a brief argument why Shepherd should be reassured by youranalysis in (f) (i) above. Shepherd Ltd is about to enter a long-term contract to be a principal supplier for asuccessful new business, Bowdry Ltd. Bowdry has recently increased its capitalbase by significantly increasing its loan capital. While the directors of Shepherdare impressed by the rapid increase in profitability of Bowdry, they are concernedthat their customer has only been in business for about five years.In the last year, the year ending 30 June 2021, the economy in which bothcompanies operate has experienced a recession or downturn for the first time in9 years.Question 3Shepherd Ltd now wants to analyse Bowdry's solvency and working capitalmanagement as part of its assessment to see whether the company is a goodlong-term credit risk. All sales and purchases are on 60 days' credit allowed.Below are extracts from the latest financial statements of Bowdry Ltd for the pasttwo financial years.Bowdry LtdExtracts from the statement of financial20212020position at 30 June££Current assetsInventory137,23289,340Trade receivables173,317128,566Current liabilitiesTrade payables104,92191,653Total equity and non-current loan capital6,588,836 4,698,124Bowdry LtdExtracts from the statement of financial20212020performance for the year ended 30 JuneSales1,432,365 1,268,903Cost of sales(945,371) (856,280)Other expenses(162,236) (127,358)Operating profit324,758285,265Finance cost(110,000)(79,000)

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Required: Based on the information contained in the extracts of Bowdry Ltd's latest financial statements, answer the questions below. (a) Give the formulas for calculating the following two working capital ratios: (1) inventory days. (i) receivables collection period. (b) Calculate the inventory days and receivables collection period for Bowdry Ltd for 2021 and 2020 and show your workings. (Assume all sales and purchases are made on credit. All calculations should be to whole days.) (c) (i) In the accounting period above, the payables payment ratio has gone up from 39 in 2020 to 41 days in 2021. Calculate the working capital Cucle for Rowdn I td for 2021 ond 2020

Required: Based on the information contained in the extracts of Bowdry Ltd's latest financial statements, answer the questions below. (a) Give the formulas for calculating the following two working capital ratios: (1) inventory days. (i) receivables collection period. (b) Calculate the inventory days and receivables collection period for Bowdry Ltd for 2021 and 2020 and show your workings. (Assume all sales and purchases are made on credit. All calculations should be to whole days.) (c) (i) In the accounting period above, the payables payment ratio has gone up from 39 in 2020 to 41 days in 2021. Calculate the working capital Cucle for Rowdn I td for 2021 ond 2020

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 6P

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