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Media Mix Co$.$ is a small company specializing in the supply of high quality di$-$it$-$yourself

kit to Hi$-$Fi enthusiasts These include superior electronic components, circuit board and

detailed instructions. Promotion is carried out through adverts in electronics and Hi$-$Fi

magazines. The company buys the majority of its components from a specialist supplier in

China and the remainder from a few local suppliers.

The CEO is very proud of the company$$s performance and recently made the following

comment. $$We have excellent products as seen in the recent rave reviews in a major

consumer electronics magazine. Our business has grown rapidly over the years and we have

good profitability. We also have good liquidity with current assets easily covering current

liabilities. This is partly due to improved credit control over receivables. However, the

Chinese supplier demands payment at the end of each month for all the items shipped in that

month....$$

As with many small businesses, Plastic Co$.$ uses its bank overdraft to finance working

capital and has no other long term funding. The current overdraft rate is $1\%$ per month on a

monthly outstanding balance.

Extract from the management accounts for the last two years are as follows

$31$ December

$2023$

$$000$

$2022$

$$000$

Sales $1,200840$

Cost of sales $740550$

Other expenses $13281$

Inventories: Components

Finished Kits

$300$

$220$

$208$

$96$

Trade receivables $420304$

Trade payables $135104$

Purchases for the year $776490$

Bank overdraft $180100$

Requirement:

Prepare briefing notes for the meeting with the CEO analysing the company$$s working

capital management and suggesting how Media Mix Co$.$ may improve its working capital

position and an assessment and recommendation as it relates to different possible working

capital policies.

Include in your answer a calculation of the cash operating cycle and any other calculations

$($including full ratio analysis$)$ you feel are appropriate. Include also in your recommendation

practical explanations of strategies that could be put in place to enhance working capital

management.

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