# Calculate the company’s net operating working capital, Determine the company’s daily dollar… 1 answer below »

FIN 3150
Fall 2019
Assignment 1 – Examining a company’s cash cycle and working capital needs
Due: 4:00 pm, August 26, 2019
Do this assignment individually.
Select a company that has non-zero inventory, accounts receivable and accounts payable on its balance sheet. (That means you will not be using a financial institution for this assignment – or probably any other assignment in this course – and will likely use a company that generates revenue from sales rather than service, and preferably sales to other businesses rather than retail.) Use the financial statements for the two most recent years to answer the following.
1. From the company’s most recent financial statements, find the company’s
a. total revenue
b. total cost of revenue
c. average cash (two year average)
d. average accounts receivable (two year average)
e. average inventory (two year average)
f. average accounts payable (two year average)
2. Calculate the company’s net operating working capital
3. Determine the company’s daily dollar volume of sales
4. Determine the company’s daily cost of goods sold
5a. Calculate the company’s inventory turnover
b. Calculate the company’s average inventory period (days sales in inventory)
6a. Calculate the company’s accounts receivable turnover
b. Calculate the company’s average collection period
7a. Calculate the company’s accounts payable turnover
b. Calculate the company’s average payment period.
8a. Calculate the company’s operating cycle
b. Explain what that number means
9a. Calculate the company’s cash cycle
b. Explain what that number means
10a. If the company’s annual cost to carry one dollar of inventory is ten cents (i.e., 10%), what is the company’s annual dollar cost to carry inventory for the most recent year?
b. If the company’s cost of borrowing funds to carry accounts receivable is 6%, what is the annual dollar cost of carrying accounts receivable for the most recent year?
c. If purchasing on credit allows the company to save 6%, what is the company’s annual dollar savings from paying on account rather than in cash for the most recent year?
11. What is the total annual cost associated with the company’s cash cycle for the most recent year?
12. Calculate the annual dollar savings the company would realize if it
a. reduces its inventory holding period by 2%.
b. reduces its average collection period by 2%.
c. increases the average time to payment of its accounts payable by 1%.
d. What would be the aggregate annual cost savings if the company was able to achieve all three of the changes above?
13. Assuming the required return on the company’s stock is 16%, how would the value of the company change if the company’s annual net cash flow were to increase by the amount determined in 13d in perpetuity?