Question Three FLG Co has annual credit sales of $4·2 million and cost of sales of $1·89 million. Current assets consist of inventory and accounts receivable. Current liabilities consist of accounts payable and an overdraft with an average interest rate of 7% per year. The company gives two months’ credit to its customers and is allowed, on average, one month’s credit by trade suppliers. It has an operating cycle of three months. Other relevant information: Current ratio of FLG Co1·4 Cost of long-term finance of FLG Co11% Required: i. Discuss the key factors which determine the level of investment in current assets. ii. Discuss the ways in which factoring and invoice discounting can assist in the management of accounts receivable. iii. Discuss whether profitability or liquidity is the primary objective of working capital management.
Question Three
FLG Co has annual credit sales of $4·2 million and cost of sales of $1·89 million. Current assets consist of inventory and
Other relevant information:
Cost of long-term finance of FLG Co11%
Required:
i. Discuss the key factors which determine the level of investment in current assets.
ii. Discuss the ways in which factoring and invoice discounting can assist in the
iii. Discuss whether profitability or liquidity is the primary objective of
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