Practise explaining working capital, its cycle and the effects of payment timing using IB Business Management SL questions.
In the first six months of 2022, increased competition led to a fall in AXL’s sales. For the final two months of 2022, AXL plans to increase the trade credit period it offers to customers from 30 to 60 days.
AXL
AXL has two factories, in which it manufactures aluminium cans for the soft drinks industry. AXL has a maximum production capacity of 80 million cans per year.
Table 1: AXL's forecasted sales revenue and costs for 2023
AXL plans to close its two factories and move production to a new, larger factory to obtain economies of scale.
In the first six months of 2022, increased competition led to a fall in AXL's sales. For the final two months of 2022, AXL plans to increase the trade credit period it offers to customers from 30 to 60 days.
Explain the potential impact on A X L if it implements its planned increase in trade credit period.