I have attached to work below. Please review. I also need a paragraph written to these questions. 200 words each:
1. How does management determine how working capital should be financed?
2. A company’s Net Operating Working Capital rises and falls seasonally and with business cycles. What are the types of Net Operating Working Capital financing policies, and how do they affect a company?
Week 1 Homework
1) Use the Income Statement and Balance Sheet to calculate the most important 2014 working
capital ratios.
2013
Current assets
Cash
Accounts receivable
Inventory
Total
$
Fixed assets
Net plant and equipment
Total assets
$
74 $
165
393
632 $
$
2,731 $
$
3,363 $
Hampton Bay
2013 and 2014 Balance Sheets
($ millions)
2014
Current liabilities
98
Accounts payable
178
Notes payable
422
Total
698
Long-term debt
Owners’ equity
Common stock and
2,880
paid-in surplus
Retained earnings
Total
3,578
Total liabilities and equity
2013
2014
312 $
231
543 $
531 $
344
196
540
457
$
500 $
1,799 $
2,299 $
550
2,041
2,591
$
3,373 $
3,588
$
$
$
$
Hampton Bay
2014 Income Statement
Sales
Cost of goods sold
Depreciation
Earnings before interest and taxes
Interest paid
Taxable income
Taxes
Net income
$
$
$
$
Dividends
Additions to retained earnings
$
$
$
2,311
1,244
276
791
141
650
187
463
121
342
a) Quick Ratio
b) Current Ratio
c) Cash Ratio
d) Receivables Turnover (use average accounts receivable)
e) Inventory Turnover (use average inventory)
f) Payables Turnover (use average accounts payable)
g) Average Collection Period (in days) (Also called Receivables Period or Day’s Sales in Receivables)
h) Inventory Period
i) Payables Period
j) Operating Cycle
k) Cash Cycle
l) Return on Equity
m) Cash Collections from Customers
n) Cash Paid to Suppliers
2) For the year just ended, Hampton Bay had the following transactions:
a)
b)
c)
d)
A $300 dividend was paid.
Accounts payable decreased by $300.
Inventories increased by $500.
Long-term debt increased by $700
Label each item as a source or use of cash.
3) Indicate the impact of the following company actions on cash. Use the letter I for an increase, D
for decrease or N when no change occurs:
a) A dividend is paid with funds received from a sale of debt.
b) Real estate is purchased and paid for with debt.
c) Inventory is bought for cash.
d) A bank loan is repaid.
e) Sales are made on credit.
f) Next year’s taxes are prepaid.
g) Payments from previous sales are collected.
4) Bob’s Auto Parts sells its inventory in 75 days, on average. Costs of goods sold for the year are
$631,800. What is the average value of the firm’s inventory?
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