ACCA · Question 16.4 · Working Capital Management
CASE 1: AQUAHARVEST LTD
AquaHarvest Ltd is a commercial aquaculture firm farming premium salmon. The company currently allows its wholesale customers 60 days to pay their invoices. However, due to cash flow constraints, the Finance Director is considering offering an early settlement discount of 2% if customers pay within 15 days. AquaHarvest currently finances its working capital using a bank overdraft that charges an interest rate of 8% per annum. Assume a 365-day year.
AquaHarvest has grown its revenue by 40% over the last year without raising new long-term capital. Which TWO of the following are classic symptoms of 'overtrading' that AquaHarvest might exhibit?
Answer options:
A rapidly increasing reliance on the bank overdraft.
A significant decrease in the volume of inventory held.
A declining current ratio and quick ratio.
Suppliers offering more generous credit terms.
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