Streetwise LTD Case Study Samples
International Trade Finance
In the two years, both current and quick ratios have declined. In this case, looking at 2015 values, the firms were far away from the recommended ratios. As such, in the second year, the firm manages its finances more efficiently since the values are near the recommended ratios. The ratios are an indicator of prudence in financial management thus an improvement.
In relation to asset utilization, the firm has showed remarkable improvement as shown in the improvement in the total asset turnover and fixed asset turnover. As such, this implies that the firm has improved the value it derives from the utilization of its assets.
In relation to payable and receivable management, there is remarkable improvement in relation to the time that the firm takes to collect its receivables and the time it takes to pay its payables. The trend is favorable in shortening its cash conversion cycle. However, the shortening payables payment period is through the management intervention through a policy. In order to arrive at the required value, the following computation is conducted.
Trade Receivable = (recommended days *Cost of sales)/annual number of days
Trade Receivable = (40*8.19)/365 = 0.89
In order to realize the targeted accounts payable additional money is needed. The CEO is of the opinion that the funds can be sourced through an overdraft. When the CEO approaches the bank, it is likely that the bank will accept the CEO’s proposal. The reason for the acceptance is based on the liquidity of the firm. First, observing the projection, when the firm has only an overdraft of one million, the firm liquidity is still sufficient to finance its debt obligation, computing interest coverage ratio. Therefore, since the current debt will be fully settled in the coming year (projected), based on the fact that current liabilities will not exceed one year, it is possible for the firm to meet the added amount in the subsequent year. Also, the firm’s growth seems sound. Assuming that the firm will manage to sustain the 5% growth, the future prospect for the firm profitability is high.
There are other options that can be used to finance the payment of the accounts receivable. However, the report discuses four of them
Long-term Loan is one of the alternatives. Short or Long-term loan is a loan that is issued and will san for more than one financial year. The firm will be making interest payment for the duration that the loan will be allowed the make a final principal repayment at the end of the loan period.
Reserved earning can also be used to make the payments in relation to settling the accounts payable. The source of funds is cheaper since the firm determined the charge to charge itself. Also, it is available almost immediately.
Debt Swap may also be used. In this case, the firm will sell its account receivable debt to a third party. The third part will in turn settle the firm’s accounts payables.
Issue of commercial paper may also be used. Since the firm is already listed, it may utilize the power of stock markets to raise the needed amount through issuing on a one year commercial paper
The most appropriate is the use of retained earnings. As observed earlier, the source is easy to use and control the interest to be charged. As result, it may be appropriate since the firm will be investing in itself.