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X Ltd is a holding company. Senior management wishes to compare the performance of
the two subsidiaries of M Lid: Y Ltd (“Y) and Z Ltd (Z”), which operate in a similar industry.
Extracts from the financial statements of Y and Z for the year ended 31 December 2019
are as follows:
Cost of sales
Note: all revenues are credit sales.
As financial controller, prepare a memorandum for the holding company’s managing
director, which should include the following:
Estimate the cash conversion cycle for both Y and Z using the details provided
above and compare the results. Assume a 360-day year.
a list of key recommendations for improvements in the working capital
management of each company based on your results from part (a). (4 marks)
a discussion of the objectives of working capital management and two sources of
short-term financing that would be suitable for the financing of working capital.
a discussion of key steps the company should follow for the management of trade
[Total: 25 marks]
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