Financial Analysis One risk to the strategic plans of Big Red Bicycle (BRB) is b
ID: 2792100 • Letter: F
Question
Financial Analysis
One risk to the strategic plans of Big Red Bicycle (BRB) is bad debt and poor cash flow due to large trade debtors balances. Consider the following:
BRG offers 30 day terms to debtors
BRB do not train sales staff on credit terms
Credit terms are not enforced
The warehouse rent has been increased by 15%
Many bicycles need to be thrown out if parts rust; this problem exacerbates the problem of waste expense.
You have the following information from the Statement of Financial Position.
account $
trade debtors 362500
trade creditors 80000
opening stock 100000
closing stocks 300000
purchases 1000000
From the Statement of Financial Performance information given calculate the following.
a. The average debtor days ___________
b. The average creditor days __________
c. The average stock turnover _________
Show calculations all calculations.
Consider the existing BRB ageing debtor’s budget.
Prepare a summary outlining measures that need to be taken to improve the financial management of the business and cash flow.
To support your recommendations, refer to data sources, organisational needs, and analytical techniques, for example:
· statement of financial performance
· ledger accounts
· scenario information
· ageing debtors budget
· ratios.
From the Statement of Financial Performance information given calculate the following.
a. The average debtor days ___________
b. The average creditor days __________
c. The average stock turnover _________
Show calculations all calculations.
Consider the existing BRB ageing debtor’s budget.
Prepare a summary outlining measures that need to be taken to improve the financial management of the business and cash flow.
To support your recommendations, refer to data sources, organisational needs, and analytical techniques, for example:
· statement of financial performance
· ledger accounts
· scenario information
· ageing debtors budget
· ratios.
Explanation / Answer
1. Calculation:-
The average debtors days= 46 days
Average Debtors Days = Trade Debtors / Sales x 365 = 362500 / 2900000 x 365 = 45.63
Cost of Sales = Opening Stock + Purchases - Closing Stock = $ 100000+1000000 -300000 = 800,000
b) The average Creditors days :- 37 days
Average Creditors Days = Trade Creditors / Cost of Sales x 365 = 80000/800000 x 365 = 36.50
c) The average stock turnover = (Opening stock + Closing Stock ) /2 = (100000+300000 )/2 = 200000
Answer b) To Improve the existing financial management process in a matter of improving cash flow is necessary to reduce the payment period and also create a discount for payment in cash. To slow down payables is another good technique regarding to cash flow.
As we calculated above, The average debtors days is 46 days which is a higher and critical number for a company.On basic recommendation would be make it easy for people to pay, giving them many systems to pay.It is very important to have a reliable monthly statement of financial performance , at least until the percentage of debtors to reduce and keep them track of it for each quarter.The statements clarify the operations and the financial position of the company.
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