Analyse two methods to improve IPA's liquidity.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2025). The mark or mark type is shown in brackets.

1. [1] Liquidity relates to the ability of a business to meet its short-term debts.
2. [1] It is measured by the acid test and current ratio.
3. [1] Method: Introduce JIT inventory control.
4. [1] Method: Reduce credit given to business customers.
5. [1] Method: Reduce trade receivables turnover (days).
6. [1] Method: Delay payment when purchasing smartphones.
7. [1] Method: Overdraft.
8. [1] Method: Debt factoring.
9. [1] Application: Use of relevant data from Table 1.1.
10. [1] Application: Decrease in current ratio to 0.93:1.
11. [1] Application: Decrease in acid test ratio to 0.3:1.
12. [1] Application: Difference between CR and ATR suggests that liquidity problem is a result of inventory holding.
13. [1] Application: Increase in the trade receivables turnover (days) to 34.
14. [1] Application: Credit provided to business customers.
15. [1] Application: Immediate payment for smartphone inventory purchased by IPA.
16. [1] Application: Seasonal nature of demand.
17. [1] Analysis: A reduction in credit provided to business customers will bring forward payment for smartphone sales and therefore the timing of cash inflows which will increase cash held by IPA improving liquidity.
18. [1] Analysis: Delaying payment for purchases of smartphones will enable IPA to delay cash outflows. This will increase cash held by IPA and therefore improve liquidity.
19. [1] Analysis: Holding less stock of smartphones will reduce cash tied up in inventory delaying cash outflow and therefore improve the acid test ratio.