Finance 330 Discussion

Running Head: DISCUSSION

DISCUSSION

Michael:

A budget deficit can be detrimental to any financial planning.  An easy short term solution for a budget deficit would be to borrow the difference, but this can create a larger deficit in the future as it increases your expenses.  The easiest way to go about preventing a budget deficit is to manage your expenses.  There are some expenses that we can't change such as mortgage or rent, but there are some that we can cut costs on such as an electric bill or groceries.  If I had a deficit this is the first thing I would examine.  

A budget surplus on the other hand can be very beneficial to your financial health if used wisely.  The surplus funds can be used to invest in savings, stocks or bonds.  It can also be used to purchase assets that generate wealth or reduce expenses.  Increasing expenses to splurge on luxury items and things that you may not need, might not be the best way to use a budget surplus.

Jason:

If you had a budget deficit, what could you do about it? If I was running a budget deficit it would be important for me to be able to locate and determine what things I could possible eliminate from my monthly budget until I was able to get a better grasp of my financial situation. It would also be able to do a general audit of my finance for a period of 3 months, to figure out what exactly was the cause or cause(s) that resulted in the deficit.

What would be the best solution for the long term? While there are probably many “best” solutions to avoid running a budget deficit, in my opinion the best one would be to more closely monitor your finance. You could monitor your finances, by at the end of each month reviewing your purchase, and categorizing them as to whether or not they’re recurring or one-timers. You should also make an earnest attempt to put aside some savings, to help combat the deficit should the situation arise again in the future.

 If you had a budget surplus, what could you do about it? What would be your best choice, and why. If I had a budget surplus, I would look to invest the additional funds. By making good investments, investing could provide me with a greater standard of living, and depending on the success of those investments, it would be possible to save funds for the education of my children and quite possible grandchildren.

Violetta:

GRADED DISCUSSION WEEK 1

Cash conversion cycle

1. Go to http://finance.yahoo.comand get a quote for one company of your choice. On the left column, scroll down and select “Income Statement.”  Write down the annual sales, cost of goods sold, and depreciation expense for the most recent year. For some companies depreciation expense can be found in Cash Flow statement.

Company: Apple – NasdaqGS 

	2015	2014
The annual sales	25,413,000	27,441,300
Cost of goods sold	15,623,800	16,985,600
Depreciation expense	1,555,700	1,644,500

 (Finance.yahoo.com, 2016)

 

2. Select the firm's Balance Sheet. Write down the balances shown for the firm's inventories, accounts receivable, and accounts payable.

	2015	2014
Inventories	100,100	110,000
Accounts receivable	1,298,700	1,214,400
Accounts payable	2,950,400	2,747,900

(Finance.yahoo.com, 2016)

 

3. Using the information from parts a and b, calculate its inventory turnover, accounts receivable turnover, and accounts payable turnover.  You should show your work! 

	2015
Inventory Turnover=15,623,800/((100,100+110,000)/2) =148.7272727	148.7272727
Accounts receivable turnover= 25,413,000/((1,298,700+1,214,400)/2) =20.22442402	20.22442402
Accounts payable turnover= 15,623,800/((2,950,400+2,747,900)/2) =5.483670568	5.483670568

 

4. Calculate production cycle (also called Days of Sales in Inventory), collection cycle(also called Number of Days of Credit or Days of Sales Outstanding), and accounts payable cycle (also called Days of Payable Outstanding).  You should show your work! 

 

	2015
Production cycle=365/148.7272727= 2.454	2.454156479
Collection cycle=365/ 20.22442402= 18.047	18.04748554
Accounts payable cycle= 365/5.483670568=66.5612559	66.5612559

 

5. What is the company’s cash conversion cycle?  You should show your work! Please note that there is a typo in the textbook. The correct formual is    CCC = DSI + DSO – DPO 

	2015
Cash conversion cycle= 2.454156479+18.04748554- 66.5612559= -46.05961389	-46.05961389

 

6. Discuss the results that you receive in one paragraph. Should the company decrease cash conversion cycle?  Please explain your answer.

  As for inventory turnover, the company has an index equal 148,72. This means that companies can effectively control their production and therefore has a high turnover of their products. According to the accounts receivable turnover, there is 6,9. It shows that Apple can sell on credit and collect from customers effectively. As for the account payable turnover, everyone should know that the accounts payable turnover ratio is how many times a company can pay off its average accounts payable balance during the course of a year. So in Apple this index is 2,56. Next, the production cycle is the period during which the objects of labor (raw products and materials) remain in the production process, from the beginning of manufacturing through the output of a finished product. The Apple’s period is 5,81.  This suggests that the company's products are manufactured efficiently.  As for the average collection period, it is the approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients. Speaking against the company Apple, they will be required 53. Furher, the accounts payable turnover ratio is 142, it means how many times a company can pay off its average accounts payable balance during the course of a year. This figure is quite high so it shows suppliers and creditors that Apple pays its bills frequently and regularly. It also implies that new vendors will get paid back quickly (My Accounting Course, 2016). A high turnover ratio can be used to negotiate favorable credit terms in the future. Finally, there is cash conversion cycle which is -83,95. It shows how quickly and efficiently a company can buy, despite the fact that this index is negative the company will not have losses and lower profits.

 

References

Finance.yahoo.com. (2016). AAPL Balance Sheet | Apple Inc. Stock - Yahoo! Finance. [online] Available at: http://finance.yahoo.com/q/bs?s=AAPL+Balance+Sheet&annual [Accessed 17 Mar. 2016].

Stock Analysis on Net. (2016). Apple Inc. (AAPL) | Short-term (Operating) Activity. [online] Available at: https://www.stock-analysis-on.net/NASDAQ/Company/Apple-Inc/Ratios/Short-term-Operating-Activity#Inventory-Turnover [Accessed 17 Mar. 2016].

My Accounting Course. (2016). Accounting Search. [online] Available at: http://www.myaccountingcourse.com/other/accounting-search?cx=partner-pub-000283783879452357820%3Agm74uq5lfqm&cof=FORID%3A10&ie=ISO-8859-1&q=Accounts+payable+cycle&sa=Search [Accessed 17 Mar. 2016].

Lauren:

1. Apple Inc. (Aug. 2015)

Income Statement:

Annual Sales: $14,329,000

COGS: $140,089,000

Depreciation Expense: $11,257,000

2. Balance Sheet: Apple Inc.

Inventory: $2,349,000

Accounts Receivable: $35,889,000

Accounts Payable: $60,671,000

3. Inventory Turnover: COGS/Average inventory

$140,089,000/$2,349,000= $59,637,718

Accounts Receivable Turnover: Net Annual Credit Sales/(Accounts Receivable)/2

$14,329,000/ $35,889,000/2 = .1996\

Accounts Payable Turnover: Total Purchases/Accounts Payable

$2,349,000/$60,671,000= 0.03871

4. Production Cycle: 365/ inventory turnover ratio

59,637,718/365= $16,3391

Collection Cycle: credit sales/365

14,329,000/365 = $39,257

Accounts Payable Cycle: Accounts payable turnover / 365

0.03871 / 365 = 1.06

5. Cash conversion cycle: CCC=DSI+DSO-DPO

DIO=AI/(COGS/365)

DSO= AAR/(R/365)

DPO= AAP/(COGS/365)

AI = (BI+EI)/2

AAR = (BAR+EAR)/2

AAP = (BP+EP)/2

CCC=DSI+DSO-DPO= -83.96

DIO=5.81

DSO=52.65

DPO=142.42

-83.96 Means that Apple Inc. does not pay its suppliers for the goods that it buys until after it receives payment for the sale. This means that Apple Inc. does not hold a lot of inventory and holds onto its money for a longer period of time. I do not think that Apple Inc. needs to decrease its cash conversion cycle, I think that they are in overall good health.