Unity University, Adama Special Campus, Department of Accounting and Finance, Working Capital management and financial analysis,

Individual Assignment Two.

PART I: Multiple choice question:

1. lead time is: -
a.Time lag between placing an order and receiving it
b.Total time during which the economic order quantity is consumed
c. The time during which the company uses the safety stock
d.Time between orders
e. None of the above
2. Which of the following is not a component of ordering cost?
A) The cost of typing and dispatching an order.
B) Follow- up costs
C) cost involved in inspection, checking, and handling to stores,
D) Transportation cost under FOB destination agreement.
E) None of the above
3. At economic order quantity,
A. annual carrying cost will be greater than annual ordering cost
B. Annual carrying cost will be less than the annual ordering cost
C. Annual carrying cost will be equal to the annual ordering cost
D. The information is not sufficient to say something about inventory costs
E. None of the above

PART II A) WORK OUT QUESTIONS – On working capital areas (Show all your steps clearly)
1: A firm has $ 4 per year carrying cost on each unit of inventory and annual usage of 50,000 units. Ordering cost is $ 100
per order. Calculate economic ordering quantity, total cost of inventory, annual ordering cost and annual carrying cost?
2: A firm has an investment in the credit sales as $ 100,000 and the average collection period allowed to the customers as
15 days. Find the amount of investment gained and lost when the return on investment in the business is at 7 percent and
borrowings demand an interest at the rate of 4 percent per annum. The firm has a proposal to reduce its sales by reducing
the credit days from 30 days to 15 days. Does the proposal worth accepting when decrease in sales is expected as 5
percent? Ignore all other expenses as constant.

B) Questions – on Financial statement Analysis area

Ex:-The assets and liabilities of a firm as on the 31 st of Dec., 2000 were as under. Calculate the current ratio, cash ratio,
acid test ratio and its net working capital.
Assets Birr Liabilities & Capital Birr
Plant 4, 000, 000 Share Capital 3, 000, 000
Buildings 2, 000, 000 Reserves & Surplus 800, 000
Stock (inventory) 1, 500, 000 Debentures 3, 000, 000
Receivables 1, 000, 000 Creditors 600, 000
Prepaid Asset 250, 000 Bills Payable 200, 000
Marketable Securities 750, 000 Accrued Expenses 200, 000
Cash 2, 500 Provision for Taxation 650, 000
Long Term Loan 1, 300, 000

Short Answer
1. How can you classify the Ratio?
2. Give two examples of Balance Sheet ratios.
3. Give two examples of liquidity ratios.

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4. Name three current assets.
5. List out three current liabilities.
6. How is current ratio calculated?
7. What does quick ratio measure?
8. What is total Assets Turnover Ratio? And how it is calculated?
9. What is a ratio?
10. Explain the meaning of ratio analysis.

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