Inventory turnover: 5d Receivable days: 25d Payable days: 35d
This year RDFL has seen a decline in financial health. Most notably, their revenue figures have declined since last year, and when inflation is included in considerations this means that the business will have less cash to spend despite higher costs, which is reflected by the cost of sales. Overheads also seem to have increased which will apply additional pressure for good financial results. It is also crucial to note that the business cash reserves have fallen from £40,000 to £0, meaning that there is now a debt risk. Going into debt will continue to harm the financial performance of the business as interest payments will be due on top of debt repayments.
They are aware of the problems and are considering investigating different suppliers. Whilst this may be a viable solution to their problems, it is important for them to realise that there is a definite issue with actual incomes. Their current ratio has fallen from 8.8 to 4.5, meaning that they likely have lower stocking levels to reflect reduced demand.
RFDL has several options available to them to improve their finances. Their revenues are falling, and they do seem to be scaling back slightly, but if they reduced their capacity further, lowering staffing levels and operating with less stock/a smaller unit they could likely shield themselves from financial damage. However, this solution is quite a pessimistic one as it would quite simply be retrenchment without any real fight to keep the business running as is. Another slightly riskier solution would be to reassess their suppliers, and negotiate new agreements to ensure that they can have higher quality goods that fall in line with customer expectations. This, possibly in conjunction with a marketing push, could help RFDL to recover their sales and continue operation normally. It is notable that their receivables have increased from 120k to 140k over a year, which suggests that customers are struggling to pay. As it is known that some businesses who frequently purchase from RDFL are at heightened risk of going out of business, they should consider methods to improve the security of their outstanding receivables.
It may be worth RDFL considering a shorter payment window or charging an interest payment on receivables that are not paid within a certain window. This may not be good for relations with business customers (which are important as business customers make up 40% of outstanding receivables) but it should help to speed up cash inflows and allow RDFL to continue operation.