ASSIGNMENT 3 – RECEIVABLES TRANSFER

Solvency ratio is changed because the affection of debt.

Debt to equity = Total debt / Total equity = 20m/40m = 0.5

Debt to assets = Total debt / Total assets = 20m/160m = 0.125

The proceeds are used to reduce debt . As we know, when debt is reduced, solvency
ratio also increases. Therefore, both of them have an inverse ratio with each other.

ASSIGNMENT 4 – RECEIVABLES TRANSFER

1, DSO = Receivable/ sale *365 = 80/480 *365 = 60,83 days

2, When the largest debtor is transferred, DSO will be decrease:

DSO new = (Receivable – Biggest debtor)/sale *365 = (80-20)/480 *365 = 45,625 days

ASSIGNMENT 5 – SUPPLIER FINANCE

Part 1:

1. DPO= Account Payables/ COGS x 365 => Accounts Payable= (DPO x

COGS)/365= (20 x 420 )/365= 23.01m
2. Working Capital Cycle= Inventory Days + Receivable Days - Payable Days

If’s average DPO is extended by 10 days, Working Capital Cycle will decrease , It
means the length of time it takes to convert net working capital all into cash will
decrease 10 days.

Part 2:

Continuing with the same client:

1. Potential annual interest savings for client:

Accounts payable new = (DPO * COGS)/ 365 = (30*420)/365 = 34.5 (m)
Accounts payable old = 23.01m

Accounts payable increase so my clients express interest rate from deferred payment.
Money that I occupy = Accounts payable new - Accounts payable old = 11.49(m)
Potential annual interest saving = 11.49 * 4%= 0.4596 (m).= 459,600

2. Client occupy so net income increase is (20+0.4596) = 20.4596 (m)

Debt/net income will decrease