Financial Reporting and Analysis Memo ()

FINANCIAL REPORTING AND ANALYSIS
NOVEMBER 2018

MEMORANDUM



PREPARED BY: MTHOMBENI
0767297208

, QUESTION 1
1.1 Current ratio
 Current assets: Current liabilities
 668000:208000
 3,21 :1


1.2 Acid test ratio
 Current assets- Inventory: Current liabilities
 668000-500000:208000
 0,81:1


1.3 Stock turnover rate
𝐂𝐨𝐬𝐭 𝐨𝐟 𝐬𝐚𝐥𝐞𝐬

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐢𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝟏𝟏𝟐𝟓𝟎𝟎𝟎

𝟒𝟓𝟎𝟎𝟎𝟎
 2.5 times


1.4 Debtors’ collection period
𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐬 𝐫𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞
 X365
𝐂𝐫𝐞𝐝𝐢𝐭 𝐬𝐚𝐥𝐞𝐬
𝟏𝟏𝟎𝟎𝟎𝟎
 𝟏𝟎𝟖𝟎𝟎𝟎𝟎
𝒙𝟑𝟔𝟓
 37,17 days


1.5 Creditor’s payment period
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝒑𝒂𝒚𝒂𝒃𝒍𝒆
 X365
𝑪𝒓𝒆𝒅𝒊𝒕 𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔
𝟐𝟎𝟎𝟎𝟎𝟎
 X365
𝟒𝟗𝟎𝟎𝟎𝟎
 148,99 days




1.6 Debtors’ collection period is longer than expected by 7 days. This is not too bad;
however, the business can improve this ratio by offering discounts on early
settlements. Creditor’s payment period is unsatisfactory and this could damage the
credit record of the business. Division of duties should be considered so that there
will be a person who monitors creditors payment



1