Question 1
ICAN
•
2026
•
FINANCIAL MANAGEMENT
•
mixed
Case Stimulus
Kay Ltd (KL) manufactures and sells specialised aluminum scooters. The company has been very successful, with sales growing rapidly in recent years. A number of new retail outlets have been opened to extend the company’s geographical coverage and cope with the rapid increase in demand. Each retail outlet holds a wide range of available stock. Despite profits increasing over the past few years, the company’s overdraft has risen significantly to the point where it is approaching the limit of its overdraft facility, which is currently ₦5.5 million. Extracts from KL’s accounts for the last two years shows the following: Statement of financial position at 30 September 2025 2024 ₦000 ₦000 ₦000 ₦000 Non-current assets 10,600 6,000 Current assets: Inventory 2,400 1,600 Trade receivables 3,300 2,200 5,700 3,800 Current liabilities: Overdraft 5,200 2,700 Trade payables 1,000 500 (6,200) (3,200) Net current (liabilities)/assets (500) 600 Bank loan (5,000) (3,000) Net assets 5,100 3,600 Share capital 1,000 1,000 Profit or loss account 4,100 2,600 Shareholder’s equity 5,100 3,600 Profit or loss account extracts for the years to 30 September 2025 2024 ₦000 ₦000 Sales 12,000 8,000 Cost of sales (6,000) (4,000) Gross profit 6,000 4,000 Other costs (4,500) (3,000) Profit for the financial year 1,500 1,000
Additional Information
{
"label": "Supporting information 1",
"content": "i. The company’s policy is to maintain a high level of inventory in order to provide a variety of choices to customers. Thus, the level of inventory has increased in proportion to sales."
}
{
"label": "Supporting information 2",
"content": "ii. Credit is taken by all customers. The terms of credit vary depending on the value of the sale, but normally take the form of paying in a number of equal installments. KL is considering doubling the credit period available to customers in order to compete more effectively with rival companies."
}
{
"label": "Supporting information 3",
"content": "iii. Sales tend to vary significantly from month to month with the peak months being July, August and September."
}
{
"label": "Supporting information 4",
"content": "iv. The cost of sales comprises approximately 50% labour costs and 50% material and other production costs."
}
Requirements
(
a
)
Calculate the following ratios for KL for the years ended 30 September, 2024 and 30 September, 2025:
(
b
)
Write a memorandum to the directors of KL Ltd explaining alternative methods (other than ratio analysis) that KL could use to manage the company’s working capital position more efficiently. No further calculations are necessary.
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About This Question
This is
Ican
2026
Financial Management
Question 1.
It is one of the
mixed
questions from the
2026
Ican
Financial Management
examination.