Business finance : theory and practice

Chapter 13 • Management of working capital
13.5* North Anglia Engineering Ltd (NAE), a manufacturing business, has recently obtained
the financial statements of some of its industry rivals and has discovered that it holds,
on average, twice the level of inventories for its output, compared with its rivals.
(a) How should NAE set about trying to judge what levels of inventories to hold?
(b) What approach would you take to investigating NAE’s relatively high inventories
level?
13.6 Supertraders Ltd is experiencing severe liquidity problems, which you, as a business
consultant, have been asked to investigate. You have identified the problem as being
caused principally by a very poor trade credit system, with no member of staff responsible
for managing trade credit.
Your major recommendation is that the business appoints a credit manager.
(a) Outline the job description of the person to be appointed as credit manager.
(b) Set out the main headings that you would advise the new credit manager to consider,
in respect of each of the following:
(i) assessing a particular customer’s creditworthiness;
(ii) major sources of information that can be used to assess a customer’s creditworthiness;
and
(iii) addressing a proposal to alter the business’s credit policy.
‘
There are sets of multiple-choice questions and missing-word questions available
on the website. These specifically cover the material contained in this chapter. These
can be attempted and graded (with feedback) online.
There are also two additional problems, with solutions, that relate to the material
covered in this chapter.
Go to www.pearsoned.co.uk/atrillmclaney and follow the links.
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