Hi, I need help with this. It is just for practice for myself # Financial Analysis for a Large Supermarket BusinessThe data provided represents the financial information of a large supermarket business for the years ending 31st December 2020 and 31st December 2019.## Current Assets and Liabilities**As of 31/12/2020:**- **Inventories:** £900 million- **Trade Receivables:** £687.5 million- **Cash:** £525 million- **Total Current Assets:** £2,112.5 million**As of 31/12/2019:**- **Inventories:** £775 million- **Trade Receivables:** £617.5 million- **Cash:** £562.5 million- **Total Current Assets:** £1,955 million**Liabilities for Both Years:**- **Trade Payables (31/12/2020):** £2,800 million- **Trade Payables (31/12/2019):** £2,625 million- **Total Current Liabilities (Both Years):** Remains £2,800 million and £2,625 million respectively## Revenue and Profit**As of 31/12/2020:**- **Revenue:** £16,350 million- **Cost of Sales:** £14,793.25 million- **Operating Profit:** £962.5 million**As of 31/12/2019:**- **Revenue:** £15,050 million- **Cost of Sales:** £13,800 million- **Operating Profit:** £945 million## Your Task### (a) Calculate the Operating Cash Cycle in Days for the Year Ending 31st December 2020The operating cash cycle (OCC) is a measure of how long a company takes to turn its inventories into cash. It is calculated using the following components:- Inventory Days- Receivables Days- Payables Days### (b) Comment on Your Findings and Explain Whether This is Typical for This Type of Business and WhyConsider the nature of supermarket businesses which generally have fast inventory turnover due to the sale of perishable goods. Reflect on the impact of fast inventory turnover and efficient receivable management on the operating cash cycle. Analyze if the OCC aligns with industry standards for supermarkets and explain the reasons behind your findings.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Hi, I need help with this. It is just for practice for myself

# Financial Analysis for a Large Supermarket Business

The data provided represents the financial information of a large supermarket business for the years ending 31st December 2020 and 31st December 2019.

## Current Assets and Liabilities

**As of 31/12/2020:**
- **Inventories:** £900 million
- **Trade Receivables:** £687.5 million
- **Cash:** £525 million
- **Total Current Assets:** £2,112.5 million

**As of 31/12/2019:**
- **Inventories:** £775 million
- **Trade Receivables:** £617.5 million
- **Cash:** £562.5 million
- **Total Current Assets:** £1,955 million

**Liabilities for Both Years:**
- **Trade Payables (31/12/2020):** £2,800 million
- **Trade Payables (31/12/2019):** £2,625 million
- **Total Current Liabilities (Both Years):** Remains £2,800 million and £2,625 million respectively

## Revenue and Profit

**As of 31/12/2020:**
- **Revenue:** £16,350 million
- **Cost of Sales:** £14,793.25 million
- **Operating Profit:** £962.5 million

**As of 31/12/2019:**
- **Revenue:** £15,050 million
- **Cost of Sales:** £13,800 million
- **Operating Profit:** £945 million

## Your Task

### (a) Calculate the Operating Cash Cycle in Days for the Year Ending 31st December 2020

The operating cash cycle (OCC) is a measure of how long a company takes to turn its inventories into cash. It is calculated using the following components:
- Inventory Days
- Receivables Days
- Payables Days

### (b) Comment on Your Findings and Explain Whether This is Typical for This Type of Business and Why

Consider the nature of supermarket businesses which generally have fast inventory turnover due to the sale of perishable goods. Reflect on the impact of fast inventory turnover and efficient receivable management on the operating cash cycle. Analyze if the OCC aligns with industry standards for supermarkets and explain the reasons behind your findings.

Expert Solution

Step 1

Inventory: It refers to the items held by an organization which were in various forms like raw material, work-in process, and finished goods. The inventory is generally held for resale or to use in the production process.

Accounts receivable: It is a current asset of an organization. It is the amount due from customers for sale of merchandise or for providing services on credit to them.

Accounts payable: It is the current liability to an organization. It is the amount payable to the suppliers, payable towards outstanding dues etc.

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