Mr X has recently joined as Relationship Manager of PQRZ Bank. As he was going through the latest financial statements of Hypothetical Manufacturing Ltd, he found the following information:
$ in millions
Particulars
|
31.12.20X8
|
31.12.20X9
|
a. Average stock holding period
|
75 days
|
140 days
|
b. Average debtors collection period
|
90 days
|
187 days
|
c. Average creditors payment period
|
92 days
|
29 days
|
d. Tangible net worth
|
25m
|
11m
|
e. Bank borrowings
|
12m
|
27m
|
f. Profit for the year
|
7m
|
0.5m
|
Is there any deterioration in the working capital cycle during the year ended 31.12.20X9? Do you believe the credit risk has increased? Have the owners of the Hypothetical Manufacturing Ltd withdrawn funds from the business as dividends? Explain your views and possible mitigation steps, if required.