(b). Using the information given, assess whether Rowett should accept the factoring service offeredby Powell. What use should the company make of any finance provided by the factor? Question 1The following has been extracted from the financial statements of Rowett:Statement of profit or loss extracts£000£000Revenue12,000Cost of sales:Raw materials5,800Labour3,0608,860Gross profit3,140Administration/distribution1,680Profit before interest and tax1,460Financial position statement extracts£000£000Current assets:Inventory of raw materials1,634Inventories of finished goods2,018Trade receivables1,538Cash and bank5005,690Current liabilities:Trade payables1,092Overdraft300Other expenses761,468Powell, a factoring company, has offered to take over Rowett's debt administration and credit controlon a non-recourse basis for an annual fee of 2 per cent of sales. This would save Rowett £160,000 peryear in administration costs and reduce bad debts from 0.5 per cent of sales to nil. Powell wouldreduce trade receivables days to 40 days and would advance 75 per cent of invoiced debts at aninterest rate of 10 per cent.Rowett finances working capital from an overdraft at 8 per cent.

Cash conversion cycle indicates that number of days required to recover money from inventories to…

Answered: ould accept the factoring service…

Business

Accounting

ould accept the factoring service offered by Powell. What use should the company make of any finance provided by

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter12: Fainancial Statement Analysis

Section: Chapter Questions

Problem 90PSA

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