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.