Response to Classmates Discussions
kingstonman41
Week2Discussion1ClassmatesResponse.docxWeek 2 - Discussion Forum 1
Guided Response: Respond to at least three of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
On this Document there three classmates that needs to be respond to they are Lisa Schreiner , Tiffany Gordon , and Ashley Thiberville . Please provide reference to your response if any
Lisa Schreiner
Working capital analysis provides the measurement of an organization’s liquidity on a short-term basis. Liquidity management in meeting short term obligations continuously, justifies a path in long-term strength (Fenyves et al., 2014). Managing working capital does not only reflect cash, but also how quickly the organization can turn current assets into cash and delay current liabilities to increase cash flow (Block et al., 2019). The net working capital for Home Depot is $1.4M indicating the organization has a positive working capital and can cover its current liabilities with current assets, leaving a balance available for further investment.
The current ratio is 1.08 reflecting HD can cover current liabilities with current assets. In looking at the quick ratio, the organization dips to .29 identifying inventory on hand is a large portion of current assets. Inventory cannot easily be converted to cash, decreasing a company’s liquidity position and diminishing opportunities to invest in other avenues. The cash asset ratio of Home Depot is 12 indicating cash on hand can only cover 12% of short term liabilities to meet immediate needs. The inventory turnover ratio is 5 indicating the organization sell its inventory 5 times in a year. Turning a profit on inventory requires moving the items quickly from point of purchase to point of sale. The receivable ratio is 26 days (based on presuming 50% of sales are on credit), reflecting collection on sales turns fairly quickly. The days in payable calculates to 39 meaning Home Depot takes 39 days on average to pay its creditors for purchases.
Home Depot presents a few issues in its working capital management. Inventory on hand is too high, tying up cash and loosing opportunities on other investments. Cash asset ratio is not sufficient to cover immediate short term obligations. Positive aspects include quick collection of accounts receivables and delays in payment on payables, creating cash flow in the process.
Short term financing issues can arise for any company, especially in the Covid-19 economic environment we find ourselves in today. Potential sources of funds can be found in selling off some of the inventory at a discount to obtain cash, selling receivable balances to brokers, or securing long term debt at a low interest rate and investing the cash into marketable securities for a higher return or option to sell in the market as necessary (Block et al., 2019). Home Depot reflects consistent purchases of treasury stock, inflating the stock value. Once the stock value hits a profitable price, the organization can sell it on the open market and infuse cash back into the financial statements.
References
Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of financial management (17th ed.). https://www.vitalsource.com (Links to an external site.)
Fenyves, V., Tarnóczi, T., & Vörö, P. (2014). Financial indicators in managerial decision-making. Annals of the University of Oradea: Economic Science, 23(1), 893–904. http://anale.steconomiceuoradea.ro/volume/2014/n1/098.pdf (Links to an external site.)
U.S. Securities and Exchange Commission. (n.d.). EDGAR | Company Filings. https://www.sec.gov/edgar/searchedgar/companysearch.html
Tiffany Gordon
SaturdayJul 4 at 5:18pm
Week 2 discussion 1
Assets
|
Fiscal year is February-January. All values USD millions. |
2016 |
2017 |
2018 |
2019 |
2020 |
5-year trend |
|
Cash & Short Term Investments |
8.71B |
6.87B |
6.76B |
7.76B |
9.47B |
|
|
Cash Only |
8.71B |
6.87B |
6.76B |
7.76B |
9.47B |
|
|
Short-Term Investments |
- |
- |
- |
- |
- |
|
|
Total Accounts Receivable |
5.62B |
5.84B |
5.61B |
6.28B |
6.28B |
|
|
Accounts Receivables, Net |
5.62B |
5.84B |
5.61B |
6.28B |
6.28B |
|
|
Accounts Receivables, Gross |
5.69B |
5.91B |
5.61B |
6.28B |
6.28B |
|
|
Bad Debt/Doubtful Accounts |
(70M) |
(79M) |
- |
|
|
|
Working Capital is a measurement of company efficiency and operating liquidity. The working capital is generally calculated by using the following equation: subtract the Current Liabilities from Current Assets. The working Capital for Wal-mart is $4.38 billion. The working capital is significantly lower than the cash only value that is shown on the Asset chart. Surprisingly the working capital can be negative if the companies current assets are less than its current liabilities. I noticed that during the three year time frame the cash only value was significantly lower than 2016 and 2020. This is the time frame when we had a recession going on. When there are catastrophic events going on this is what generally happens to department stores because people do not have the money to spend on certain things. “Short-Term Debt & Capital Lease Obligation is the portion of a company's debt and capital lease obligation that need to be paid within the next 12 months. It equals Short-Term Debt (Links to an external site.) plus Short-Term Capital Lease Obligation (Links to an external site.). This gives investors an idea of how much money the company needs to pay down for the principle of its debt. Walmart's Short-Term Debt & Capital Lease Obligation for the quarter that ended in Apr. 2020 was $12,283 Mil. Long-Term Debt & Capital Lease Obligation (Links to an external site.) is the debt and capital lease obligation due more than 12 months in the future. Walmart's Long-Term Debt & Capital Lease Obligation (Links to an external site.) for the quarter that ended in Apr. 2020 was $63,149 Mil”(gurufocus). Companies can borrow money from places and they also can sell part of their company to gain funds as well. “Walmart's quarterly Short-Term Capital Lease Obligation increased from Oct. 2019 ($2,208 Mil) to Jan. 2020 ($2,304 Mil) but then declined from Jan. 2020 ($2,304 Mil) to Apr. 2020 ($2,252 Mil)”(gurufocus).
References:
Thorndike, W., N., Jr. (2012). The outsiders: Eight unconventional CEOs and their radically rational blueprint for success . Retrieved from https://www.vitalsource.com (Links to an external site.)
https://www.gurufocus.com/term/ShortTermCapitalLeaseObligation/WMT/Short-Term-Capital-Lease-Obligation/Walmart
Ashley Thiberville
YesterdayJul 7 at 1:05pm
Working capital is the ability of an organization to meet short term obligations through their ability to convert current assets into cash (Block, Hirt & Danielson, 2019). Working capital is important for business as the management of assets takes up much of a financial advisor’s time as they find ways for the business to efficiently utilize assets and manage liabilities to support short term goals. The financial manager may rely on long term financing to fund short term obligations. Long term financing is often more beneficial for a larger firm as interest rates can be higher than short term financing options (Block et al, 2019).
Lowe’s is a home improvement chain has a current ratio of 1.01, which shows how they are managing their current assets compared to current liabilities. Lowe’s current ratio is slightly below the ideal range of 1.2 to 2, meaning they will have a hard time finding enough liquid assets to cover short-term liabilities. Lowe’s has a lot of their assets tied up in inventory, with a quick ratio of 0.14. Inventory cannot be easily converted into usable cash, which could lead to Lowe’s relying on financing to meet obligations. Outside of long-term financing, Lowe’s could sell off a portion of inventories to meet obligations or manage accounts receivable collections to meet the short-term needs of the business.
Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com
