A large debt of 250,000 GBP is due in a short period and the company does not have enough funds to repay them. If it cannot repay, this company will find itself into trouble or the project can fail. The cash flow might not be enough in meeting the debt obligation. This cash flow situation is further aggregated by the fact that the company can invest heavily on the current assets to catalyze the cash outflow.
This company must track the inventory. However, in order to do it, it needs to hire additional staff. This means the company will incur greater expense in salaries and wages. To solve this problem, new software and tools can also be implemented to track the inventory more efficiently. However, this needs adjusting the policy of the company. The modification in the mindset and policies must be effected by this company, considering the financial mess that it finds itself.
The number of days in a year that a company resorts to collecting its average accounts receivables is known as trade receivable turnover. The intention of this ratio is the ability and evaluation of the company in issuing credit to its prospects and customers efficiently and the timely collection of funds being carried out. The fact that trade receivable turnover has increased is indicative of the chance that the company has several high quality customers. This is a positive aspect for this company that its collection procedure is aggressive, meaning that there is less probability of outstanding accounts receivables and fewer bad debts.
The working capital has decreased for the company from the previous year to this year. The working capital can be defined as the difference between the current assets and the current liabilities. There have been changes in the working capital for this company as the working capital changed from 520,000 GBP in the previous year to 280,000 GBP in the current year. Therefore, there has been a sizeable decrease in the working capital for this company. This company should reduce investments on the current assets or reduce the reduction of current liabilities.