Ajabundu Limited was incorporated in Lagos, Nigeria, in January 2016. The following information was extracted from the company’s financial statements:
See the notes to the financial statements as follows:
You are required to compute the:
a. Working capital cycle for the 2016 and 2015 financial years.
b. Ratios outlined in (i), (ii), and (iii) and expound on the liquidity of Ajabundu Limited for the 2016 and 2015 financial years, respectively.
i. Cash ratio
ii. Current ratio
iii. Quick ratio
A suggested solution to practice activity 10.8
a. Working Capital Cycle
This is calculated as follows:
Inventory turnover period + Account receivable collection period – Account payable payment period
Comments on the Company’s Liquidity over the Two Years
Working Capital Cycle reduced from 194 days in 2015 to 118 days in 2016. This implies that it takes a shorter time to convert inventory to revenue.
Comments