Reference no: EM133065093
Critical Thinking Questions
What factors must a financial manager consider when making decisions about accounts receivable?
List some of the working capital management characteristics you would expect to see in a computer manufacturing company following just-in-time inventory practices.
Questions and Problems
Cash conversion cycle: Gleeson Automotive estimates that it takes the company about 62 days to collect cash from customers on finished goods from the day it receives raw materials and about 65 days to pay its suppliers. What is the company's cash conversion cycle? Interpret your answer.
Operating cycle: Lilly Bakery distributes its products to more than 75 restaurants and delis. The company's collection period is 27 days, and it keeps its inventory for 4 days. What is Lilly Bakery's operating cycle?
Cost of trade credit: Juggs Ltd sells its goods with terms of 4/10 EOM, net 60. What is the implicit cost of the trade credit?
Effective interest rate: The Turnkey Bank requires borrowers to keep an 8 percent compensating balance. Gorman Jewels borrows $340,000 at a 7 percent stated APR. What is the effective interest rate on the loan?
Cash conversion cycle: Joanna Handicrafts Ltd has net sales of $4.23 million with 50 percent being credit sales. Its cost of sales is $2.54 million. The company's cash conversion cycle is 47.9 days. The company's operating cycle is 86.3 days. What is the company's accounts payable?
Operating cycle: Aviva Technology's operating cycle is 81 days. Its inventory level was at $134,000 last year, and the company had a $1.1 million cost of sales. How long does it take Aviva Technology to collect on its receivables?
Morgan Sports Ltd just reported the following financial figures.
Morgan Sports Equipment Ltd
|
Assets
|
|
Liabilities and Equity
|
|
Cash
|
$ 677,423
|
Accounts payable
|
$1,721,669
|
Accounts receivable
|
1,845,113
|
Notes payable
|
2,113,345
|
Inventories
|
1,312,478
|
|
|
Total current assets
|
$3,835,014
|
Total current liabilities
|
$3,835,014
|
Net sales
|
9,912,232
|
|
|
Cost of sales
|
5,947,399
|
|
|
a. Calculate the company's days' sales outstanding.
b. What is the company's days' sales in inventory?
c. What is the company's days' payable outstanding?
d. What is the company's operating cycle? How does it compare to the industry average of 72 days?
e. What is the company's cash conversion cycle? How does it compare to the industry average of 42 days?
McBreen Electricals, one of the largest generator dealers in Port Augusta, sells about 2,000 generators a year. The cost of placing an order with their supplier is $750, and the inventory-carrying costs are $170 for each generator. McBreen Electricals likes to maintain safety stock of 15 at all times.
a. What is the company's EOQ?
b. How many orders will the company need to place this year?
c. What is the average inventory for the season?