Cash Operating Cycle – NBC Institute

FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Calculation of cash operating cycle and comparative ratios for Kobape Limited, and analysis of company performance through a report.

Question

Shown below are the financial statements of Kobape Limited for its most recent two years.

Extract from the statement of profit or loss for the year ended 30 April:

	2019 (N’000)	2018 (N’000)
Revenue	224,000	195,000
Cost of sales	(169,200)	(136,500)
Gross profit	54,800	58,500
Administrative costs	(32,700)	(38,040)
Distribution costs	(10,900)	(12,680)
Finance cost	(1,900)	(1,380)
Profit before tax	9,300	6,400

Statement of financial position as at 30 April:

Assets (N’000)	2019	2018
Non-current assets	37,000	28,600
Current assets:
– Inventory	12,800	9,800
– Trade receivables	24,600	21,600
– Cash balance	1,600	2,400
Total assets	76,000	62,400

Equity and liabilities:

	2019	2018
Ordinary share capital	16,000	16,000
Retained earnings	26,200	18,600
Non-current liabilities:
– 10% loan notes	16,000	12,000
Current liabilities:
– Bank overdraft	2,200	1,600
– Trade payables	15,000	13,800
– Taxation	600	400
Total equity and liabilities	76,000	62,400

The following are the ratios calculated for Kobape Limited based on the financial statements of the previous year and also the latest industry average ratios:

Ratio	Kobape Ltd (30 April 2018)	Industry Average
Net profit margin	3.99%	4.73%
ROCE (Capital employed = equity + loan notes)	16.69%	18.50%
Asset turnover	4.19 times	3.91 times
Current ratio	2.14:1	1.90:1
Quick ratio	1.52:1	1.27:1
Gross profit margin	30.0%	35.23%
Account receivables collection period	40 days	52 days
Account payables payment period	37 days	49 days
Inventory turnover (times)	13.9 times	18.3 times
Gearing ratio	25.75%	32.71%

Required:
a. Calculate the cash operating cycle of Kobape Limited for the year ended 30 April, 2018 and 2019. (5 Marks)

b. Calculate the comparative ratio(s) (to two decimal places where appropriate) for Kobape Limited for the year ended 30 April, 2019. (5 Marks)

c. Draft a report addressed to the board of directors of Kobape Limited, analyzing the performance of the company for the year 2019 based on the result of the previous year and the industry average. (10 Marks)

Answer

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Tags: Cash Operating Cycle, Gearing Ratios, Liquidity Ratios, Profitability Ratios, Ratio Analysis
Level: Level 2

Topic: Statement of Cash Flows (IAS 7)
Series: MAY 2019

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

Question

a) FG Ltd is preparing its cash budget for January, February, and March 2020. Budgeted data are as follows:

	November	December	January	February	March
Sales (Units)	750	800	800	850	900
Production (Units)	800	800	850	900	950
Direct labour & variable overhead incurred	GH¢48,000	GH¢48,000	GH¢51,000	GH¢54,000	GH¢57,000
Fixed overhead incurred (excluding depreciation)	GH¢20,000	GH¢20,000	GH¢20,000	GH¢20,000	GH¢20,000

The selling price per unit is GH¢200. The purchase price per kg of raw material is GH¢25. Each unit of finished product requires 2kg of raw materials which are purchased on credit in the month before they are used in production. Suppliers of raw materials are paid one month after purchase.
All sales are on credit. 80% of customers pay one month after sale and the remainder pays two months after sale.
The direct labour cost, variable overheads, and fixed overheads are paid in the month in which they are incurred.
Machinery costing GH¢100,000 will be delivered in February and paid for in March.
Depreciation, including that on the new machinery, is as follows:
- Machinery and equipment GH¢3,500 per month
- Motor vehicle GH¢800 per month

The opening cash balance on 1 January is estimated to be GH¢15,000.

Required:
i) Prepare a cash budget for each of the three months January, February, and March. (12 marks)
ii) State and explain FOUR (4) usefulnesses of cash budgets. (4 marks)

b) A company’s sales revenue for the year just ended was GH¢28 million. The company earned a gross margin of 40% on sales. All sales and purchases were on credit.

The following balances have been extracted from the year-end accounts:

Inventory: GH¢4 million
Accounts receivable: GH¢6 million
Accounts payable: GH¢3 million

Required:
Calculate, to the nearest whole number, the company’s cash operating cycle based on the year-end figures. (4 marks)

Answer

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Tags: Cash Budget, Cash Flow, Cash Operating Cycle, Receipts and Payments
Level: Level 1

Topic: Cash Budgeting and Working Capital
Series: NOV 2020

FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Calculation of cash operating cycle and comparative ratios for Kobape Limited, and analysis of company performance through a report.

Question

Shown below are the financial statements of Kobape Limited for its most recent two years.

Extract from the statement of profit or loss for the year ended 30 April:

	2019 (N’000)	2018 (N’000)
Revenue	224,000	195,000
Cost of sales	(169,200)	(136,500)
Gross profit	54,800	58,500
Administrative costs	(32,700)	(38,040)
Distribution costs	(10,900)	(12,680)
Finance cost	(1,900)	(1,380)
Profit before tax	9,300	6,400

Statement of financial position as at 30 April:

Assets (N’000)	2019	2018
Non-current assets	37,000	28,600
Current assets:
– Inventory	12,800	9,800
– Trade receivables	24,600	21,600
– Cash balance	1,600	2,400
Total assets	76,000	62,400

Equity and liabilities:

	2019	2018
Ordinary share capital	16,000	16,000
Retained earnings	26,200	18,600
Non-current liabilities:
– 10% loan notes	16,000	12,000
Current liabilities:
– Bank overdraft	2,200	1,600
– Trade payables	15,000	13,800
– Taxation	600	400
Total equity and liabilities	76,000	62,400

The following are the ratios calculated for Kobape Limited based on the financial statements of the previous year and also the latest industry average ratios:

Ratio	Kobape Ltd (30 April 2018)	Industry Average
Net profit margin	3.99%	4.73%
ROCE (Capital employed = equity + loan notes)	16.69%	18.50%
Asset turnover	4.19 times	3.91 times
Current ratio	2.14:1	1.90:1
Quick ratio	1.52:1	1.27:1
Gross profit margin	30.0%	35.23%
Account receivables collection period	40 days	52 days
Account payables payment period	37 days	49 days
Inventory turnover (times)	13.9 times	18.3 times
Gearing ratio	25.75%	32.71%

Required:
a. Calculate the cash operating cycle of Kobape Limited for the year ended 30 April, 2018 and 2019. (5 Marks)

b. Calculate the comparative ratio(s) (to two decimal places where appropriate) for Kobape Limited for the year ended 30 April, 2019. (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Operating Cycle, Gearing Ratios, Liquidity Ratios, Profitability Ratios, Ratio Analysis
Level: Level 2

Topic: Statement of Cash Flows (IAS 7)
Series: MAY 2019

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

Question

a) FG Ltd is preparing its cash budget for January, February, and March 2020. Budgeted data are as follows:

	November	December	January	February	March
Sales (Units)	750	800	800	850	900
Production (Units)	800	800	850	900	950
Direct labour & variable overhead incurred	GH¢48,000	GH¢48,000	GH¢51,000	GH¢54,000	GH¢57,000
Fixed overhead incurred (excluding depreciation)	GH¢20,000	GH¢20,000	GH¢20,000	GH¢20,000	GH¢20,000

The selling price per unit is GH¢200. The purchase price per kg of raw material is GH¢25. Each unit of finished product requires 2kg of raw materials which are purchased on credit in the month before they are used in production. Suppliers of raw materials are paid one month after purchase.
All sales are on credit. 80% of customers pay one month after sale and the remainder pays two months after sale.
The direct labour cost, variable overheads, and fixed overheads are paid in the month in which they are incurred.
Machinery costing GH¢100,000 will be delivered in February and paid for in March.
Depreciation, including that on the new machinery, is as follows:
- Machinery and equipment GH¢3,500 per month
- Motor vehicle GH¢800 per month

The opening cash balance on 1 January is estimated to be GH¢15,000.

Required:
i) Prepare a cash budget for each of the three months January, February, and March. (12 marks)
ii) State and explain FOUR (4) usefulnesses of cash budgets. (4 marks)

b) A company’s sales revenue for the year just ended was GH¢28 million. The company earned a gross margin of 40% on sales. All sales and purchases were on credit.

The following balances have been extracted from the year-end accounts:

Inventory: GH¢4 million
Accounts receivable: GH¢6 million
Accounts payable: GH¢3 million

Required:
Calculate, to the nearest whole number, the company’s cash operating cycle based on the year-end figures. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Budget, Cash Flow, Cash Operating Cycle, Receipts and Payments
Level: Level 1

Topic: Cash Budgeting and Working Capital
Series: NOV 2020

Question Tag: Cash Operating Cycle

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FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Calculation of cash operating cycle and comparative ratios for Kobape Limited, and analysis of company performance through a report.

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Calculation of cash operating cycle and comparative ratios for Kobape Limited, and analysis of company performance through a report.

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

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FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Calculation of cash operating cycle and comparative ratios for Kobape Limited, and analysis of company performance through a report.

You're reporting an error for "FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)"

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

You're reporting an error for "IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital"

FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)

Calculation of cash operating cycle and comparative ratios for Kobape Limited, and analysis of company performance through a report.

You're reporting an error for "FR – May 2019 – L2 – Q3 – Statement of Cash Flows (IAS 7)"

IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

You're reporting an error for "IMAC – NOV 2020 – L1 – Q2 – Cash Budgeting and Working Capital"

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