NikoTech Case Assignment

ASSIGNMENT QUESTIONS:

Note: The instructor reserves the right to change the points for this assignment and these questions at his discretion. Points shown below are only approximate and may change.

Please answer the following questions in your presentation:

Question 1. Calculate the following three measures for both Y1 and Y2 for NikoTech .

a. Days of inventory (DOI)

b. Days of receivables (DRO)

c. Length of the operating cycle

Please be sure to clearly show your calculations so that partial credit can be awarded if necessary.

Also, for the purposes of this question, please assume that the inventory and receivables data shown in the NikoTech balance sheet are average values for each year.

Question 2. Calculate the following two measures for both Y1 and Y2 for NikoTech.

a. Days of payables (DPO)

b. Length of the cash-to-cash cycle

Please be sure to clearly show your calculations-assume that the accounts payable data shown in the NikoTech balance sheet are average values for each year.

Question 3. Days of inventory (DOI) can be reduced by reducing average inventory or by increasing cost-of-goods sold (COGS). However, because COGS is a cost, a firm desires COGS to be increasing only for the "right" reasons.

a. Do COGS appear to be increasing for the right reasons for NikoTech between Y1 and Y2?

b. Please clearly explain why or why not.

c. If you believe COGS is not increasing for the right reasons, what value for COGS in Y2 would make you believe COGS is increasing for the right reasons?

d. Please be sure to explain how you derived this value.

Question 4. Is average inventory or COGS primarily responsible for driving the Y1-Y2 trend in DOI for NikoTech?

Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

Question 5. This question has two parts. Both parts concern the change in days of receivables (DRO) that you calculated in Q1 (24 points).

a. Are net sales or average receivables primarily driving the Y1-Y2 change in DRO? Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

b. Describe the impact on DRO of the change in returns and allowances between Y1 and Y2. Be sure to use data and calculations to enhance your response.

Note that returns occur when customers return defective, damaged, or otherwise undesirable products to the seller. Sales allowances occur when customers agree to keep such merchandise in return for a reduction in the selling price.

Question 6. From the data provided, is days payable outstanding (DPO) contributing significantly to the change in value of NikoTech's cash-to-cash cycle between Y1 and Y2?

Please be sure to explain why or why not, using data and calculations where appropriate to enhance your explanation.

Question 7. This question has three parts :

a. Calculate inventory turnover for Y1 and Y2, again assuming that the values in the balance sheet are average values for each year.

b. Mathematically express inventory turnover in terms of days of inventory, being sure to show how you derived your mathematical expression. In other words, write an equation such as: Inventory turnover = expression, where "expression" contains the DOI term.

c. Would you consider the change in inventory turnover from Y1-Y2 a positive or negative indication of inventory management performance for NikoTech? Please explain.

Question 8. Calculate the following Strategic Profit (du Pont) Model measures for Y1 and Y2 for NikoTech:

a. Net profit (income) margin (%)

b. Asset turnover

c. Return on assets (%)

Please be sure to clearly show your calculations and, as in questions 1 and 2, assume the balance sheet data are averages for each given year.

Question 9. NikoTech's return on assets deteriorates between Y1 and Y2 despite a 23% increase in sales and a nearly 18% increase in net sales from Y1 to Y2. Identify the financial reasons or drivers of this deteriorating performance by answering the following two questions (28 total points):

a. Is net profit margin or asset turnover primarily driving the Y1-Y2 change in NikoTech's return on assets? Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

b. For the primary driver (net profit margin or asset turnover) identified in part a, what are the 2-3 principal financial factors that account for the deteriorating trend in this measure? Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

Question 10. Are measures of NikoTech's supply chain velocity improving or deteriorating between Y1 and Y2? The two principal measures of velocity are the operating cycle and the cash-to-cash cycle. You calculated both of these items in Q1 and Q2.

a. Describe the impact of this change in supply chain velocity as represented by the operating cycle on asset utilization and the flow of cash. Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.

b. Describe the impact of this change in supply chain velocity as represented by the Cash-to-cash cycle on asset utilization and the flow of cash. Please be sure to explain your response, using data and calculations where appropriate to enhance your explanation.