FIN 610 Short Term Financial Management

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Problem One

Module One Homework Assignment
Student's Name: John Wingate
Problem 1 (From Chapter 1)
For each part below, calculate the amount of cash received by Company ABC from its customers:
(In thousand of dollars)
Beginning Receivables Ending Receivables Sales Amount of Cash Received
a. $100 $600 $3,000 $2,500
b. $2,000 $3,500 $7,000 $5,500
c. $3,500 $1,200 $5,500 $7,800

Problem Two

Module One Homework Assignment
Problem 2 (From Chapter 1)
Anthlam Electronics reported the following information:
(In thousand of dollars)
Year Beginning Accounts Payable Ending Accounts Payable Beginning Inventory Ending Inventory Cost of good sold Amount of Purchases Dollar Amount of Cash Paid to Suppliers
2009 $200 $1,000 $2,000 $4,000 $1,200 $3,200 $4,000
2010 $500 $400 $3,000 $2,000 $1,800 $800 $700
2011 $1,000 $400 $5,000 $3,000 $2,500 $500 ($100)
For each year, calculate the Amount of Purchases and the Dollar Amount of Cash Paid to Suppliers
Notes
2009 Increase of Inventory $2,000 $1,200
2010 Decrease of Inventory ($1,000) $1,800
2011 Decrease of Inventory ($2,000) $2,500

Problem Three

Module One Homework Assignment
Problem 3 (From Chapter 2)
The following financial information is provided for Iron Works Corporation of America:
(In thousand of dollars)
Year 2005 2006 2007 2008 2009
Cash & equivalents $ 100 $ 200 $ 250 $ 300 $ 500
Accounts receivable $ 200 $ 300 $ 300 $ 450 $ 600
Inventory $ 75 $ 125 $ 175 $ 50 $ 200
Gross fixed assets $ 800 $ 800 $ 850 $ 900 $ 950
(Accumulated depreciation) $ (50) $ (100) $ (150) $ (200) $ (250)
Total assets $ 3,130 $ 3,331 $ 3,432 $ 3,508 $ 4,009
Accounts Payable $ 75 $ 100 $ 125 $ 150 $ 200
Notes payable $ 50 $ 60 $ 80 $ 100 $ 110
Accrued operating expenses $ 15 $ 20 $ 15 $ 30 $ 40
Current maturities $ 20 $ 20 $ 18 $ 19 $ 20
Long-term debt $ 100 $ 95 $ 90 $ 85 $ 80
Total liabilities $ 260 $ 295 $ 328 $ 384 $ 450
Shareholders equity $ 2,870 $ 3,036 $ 3,104 $ 3,124 $ 3,559
Revenues $ 1,600 $ 1,700 $ 1,800 $ 1,900 $ 2,000
Cost of goods sold $ 640 $ 680 $ 720 $ 760 $ 800
Operating expenses $ 600 $ 510 $ 540 $ 570 $ 600
Depreciation $ 157 $ 167 $ 172 $ 175 $ 200
Interest $ 5 $ 5 $ 5 $ 4 $ 4
Taxes $ 80 $ 85 $ 90 $ 95 $ 100
Net income $ 119 $ 254 $ 274 $ 295 $ 296
Dividends $ 50.00 $ 50.00 $ 50.00 $ 50.00 $ 50.00
Using the information provided in the above financial statements, perform the following analyses and complete parts a. through f. below:
a. SOLVENCY RATIOS 2005 2006 2007 2008 2009
Current Ratio 12.038 11.292 10.463 9.135 8.909 Carry-out answers to only a maximum of 3 decimal places
Quick Ratio 11.750 10.868 9.930 9.005 8.464 Carry-out answers to only a maximum of 3 decimal places
Net Working Capital $ 2,870,000.00 $ 3,036,000.00 $ 3,036,000.00 $ 3,124,000.00 $ 3,559,000.00 In thousand of dollars
Working Capital Requirements In thousand of dollars
Working Capital Requirements/Sales
Discuss and interpret the trends that you see:
b. Calculate the cash flow from operations for 2006 through 2009 and the cash conversion efficiency:
(In thousand of dollars) 2006 2007 2008 2009
Net Income N/A $ 254 $ 274 $ 295 $ 296
Depreciation N/A $ (100) $ (150) $ (200) $ (250)
(Increase) decrease in AR N/A $ (100) $ - 0 $ (150) $ (150)
(Increase) decrease in INV N/A $ (50) $ (50) $ 125 $ (150)
Increase (decrease) in AP N/A $ 25 $ 25 $ 25 $ 50
Increase (decrease) in Accruals N/A $ 15
Cash Flow from Operations
Interpret the trends:
c. Calculate the cash conversion period for each year from 2005 to 2009:
2005 2006 2007 2008 2009
Days Sales Outstanding
Days Inventory Held
Days Payables Outstanding
Operating Cycle
Cash Conversion Period
Interpret the trends:
d. Using your calculated cash flow from operations to be the following, calculate the current liability index.
2005 2006 2007 2008 2009
Cash Flow From Operations
Current Liquidity Index In Days removed from cash
Interpret the four (4) year trend:
e. Compare and contrast your interpretation of the of the current ratio trend with your interpretation of the current liquidity ratio.
f. What is your opinion of the firm's liquidity position and why?

References

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