Assignment - Examining a company's working capital needs

Select a company that has inventory, accounts receivable and accounts payable on its balance sheet. Using the most recent annual financial statement for a company, do the following:

Part 1

1. Calculate the company's net working capital.

2. Determine the company's daily dollar volume of sales.

3. Determine the company's daily cost of goods sold.

4a. Calculate the company's inventory turnover.

b. Calculate the company's average inventory period (days in inventory).

5a. Calculate the company's accounts receivable turnover.

b. Calculate the company's average collection period.

6a. Calculate the company's accounts payable turnover.

b. Calculate the company's average payment period.

Part 2 -

7a. Calculate the company's operating cycle?

b. Explain what that number means.

8a. Calculate the company's cash cycle?

b. Explain what that number means.

9a. 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?

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?

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?

10. What is the total annual cost associated with the company's cash cycle?

11. Calculate the annual dollar savings the company could realize if it

a. reduced its inventory holding period by 2%.

b. reduced its average collection period by 3%.

c. increased the average time to payment of its accounts receivable by 4%.

d. What would be the aggregate annual cost savings if the company was able to achieve all three of the changes above?

12. 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 11d in perpetuity?