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 affect production because of the lack
of raw material, And then lead to the loss of customers; if the market forecast is
higher, it will increase inventory costs and reduced profit
Secondly, we should learn about the account receivables days. It reflects the recovery
of receivables and the management efficiency of the company. APE’s receivable days
are 13.75 while AHE’s receivable days are 21.68. It is our company’s strengths. But it
is just a modest difference. The reason of this result is the tighter policy of credit and
the shorter credit period. I suggest the company find a balance point that on the basis
of inventory turnovers. After all, receivable turnover and inventory turnover have the
crucial connection. In my opinion, receivable turnover rate don’t manifestation the
company’s working capital management is very brilliant and forceful. In practice, if
the company carries out tight credit policy, in the short term receivable turnover ratio
will attain a span. However tighter standard of credit policy also put forward higher
requirements for customers. It lead to the passenger source is limited. The competitive
power of the company will decline. As a matter of fact, APE as a retail company, I
think credit sale is more advantageous than cash sales, because it can improve
inventory turnover rate and saleroom.
Thirdly, in the cash cycle, account payable days are a main body. Account payable
days can reflect the efficiency of cash flow. AHG’s payable days are 18.30 which
APE’s payable days are 16.64. AHG is longer than APE by 1.66days.Although it is
just a tiny difference. But to compare with AHG, payable turnover is APE’s
weaknesses. Receivable days of APE is relatively short, I speculate it may due to our
company’s relationship with suppliers is not very amicable and harmonious, or tight
supply of raw materials cause the situation. I think the manager should improve our
company’s reputation and popularity in the market. At the same time, our company
should improve the bargaining power in the business negotiation. On the one hand,
