Task 1:Working Capital Management；
Ratios APE AHG
Days Inventory(days) 60.98 51.83
Days Receivable(days) 13.75 21.68
Days Payables(days) 16.64 18.30
Cash Cycle(days)(CCC) 58.09=60.98+13.75-16.64 55.21=51.83+21.68-18.30
Funding gap(days)=-CCC -58.09 -55.21
The purpose of my report is to assess APE’s working capital management relative to AHG
and provide recommendations for APE’s improvement. The chart is analysis the cash cycle
about the two companies. We can systematic analysis working capital management. Cash
cycle is inventory days plus accounts receivable days minus accounts payable days. The
cash cycle also called cash conversion cycle (CCC).The process whereby cash outflow to
create output/sales is returned as cash inflow from sales. In my opinion, we can through
inventory management, receivables management and payables management to estimate the
company’s working capital management.
At first, the inventory days is a time period starting from the acquisition of inventory
liquidation. Accounting to the chart, inventory days of APE are 60.98 while AHG’s
inventory days are 51.83. It is obvious that, APE’s inventory days are longer than AHG’s
by 9.15 days. As a result, APE must cost more capital to maintain the inventory.It will go
against our company’s development in the future. If our company try to shorten inventory
days, it will reduce the costs of holding inventory consist of acquisition costs, order costs
and carrying costs. APE’s main business operation is auto parts retail. The major inventory
days mean that our company has a slower speed of inventory liquidation. From the table,
we can obtain a result, in the three kinds of data, the APE’s inventory days compared to
AHG’s have the largest gap. Inventory days are very important in the cash cycle. It can
reflect a company’s inventory turnover. If inventory turnover ratio is greater, it is better to
the company to sell and product goods. In the inventory, raw materials and finished goods
occupy a large proportion. So if APE want to ameliorate,my recommendation will include
in two portions about them: 1. Finished good: In working capital management,the quality
of finished good is essential question. Priority among priorities,the precision of parts is
core problem. For a retail company,after-sale service is very significant , if the company
only willing to meet the customers’ demand for commodities, it will increase inventory
carrying costs.2.Raw material: As a retail company, APE should make advisable market
forecast plan that make sure to purchase appropriate raw materials. It can minimize the risk
that APE can’t acquire an input to product. However, if the market forecast is lower, it will
