Ross Hill Ltd has been particularly concerned with its liquidity position in recent months. The most recent income statement and statement of financial position of the business are as follows:
£000 £000
Sales revenues 1200
Cost of sales
Opening inventories 300
Purchases 632
932
Closing inventories (286) (646)
Gross profit 258
Expenses (200)
Profit of the year 354
Statement of financial position as at 31 December 2020
£000
ASSETS
Non-current assets
Property, plant and equipment 714
Current assets
Inventories 286
Trade receivables 326
Total assets 1326
EQUITY AND LIABILITIES
Equity
Ordinary share capital 200
Retained earnings 316
516
Non-current liabilities
Borrowings-loans 240
Current liabilities
Trade payables 290
Borrowing – bank overdraft 280
570
Total equity and liabilities 1326
Required:
a) Discuss the theory of working capital management.
b) Calculate the operating cash cycle for Ross Hill Limited and advise management on how OCC can be improved.
c) Discuss the relationship between cash operating cycle and the level of working capital.
Mini-Mart Limited sells high-quality tea and coffee at the Hong Kong International Airport. Company management is confident that the COVID-19 pandemic will not significantly alter its sales forecasts. The company recorded the following sales figures in the last two years and would like to forecast future sales:
Year Month Time Period (x) Actual Sales (y)
HK$ ’000
1 January 1 245
1 February 2 244
1 March 3 250
1 April 4 260
1 May 5 265
1 June 6 260
1 July 7 255
1 August 8 245
1 September 9 240
1 October 10 255
1 November 11 265
1 December 12 270
2 January 13 250
2 February 14 250
2 March 15 258
2 April 16 267
2 May 17 273
2 June 18 278
2 July 19 260
2 August 20 256
2 September 21 255
2 October 22 270
2 November 23 275
2 December 24 283
Required:
a) Calculate four-month moving average.
b) Using simple linear regression, manually generate forecast sales figures months 25-36
C) Discuss the relevance of top four forecasting methods for a small or medium-sized enterprise to predict future revenues, expenses, and capital costs.
