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Working Capital

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2003 2004
Accounts receivable $220,000 $180,000
Cost of goods sold $600,000 $650,000
Inventory (ending) $90,000 $70,000
Net cash provided by operating activities $130,000 $85,000
Net sales $1,200,000 $900,000
Capital expenditures $30,000 $25,000
Dividends $20,000 $10,000

(A) What is the inventory turnover for 2003?
(B) What is the number of days in inventory for 2003?
(C) What is the account receivables turnover for 2003?
(D) What is the average collection period for 2003? (In terms of days)

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Solution Preview

(A) What is the inventory turnover for 2003?

Cost of goods sold (COGS) = $600,000
Inventory = $90,000
Therefore inventory turnover= $600,000 / $90,000 = 6.67 ...

Solution Summary

Inventory turnover, number of days in inventory, account receivables turnover, average collection period (In terms of days) are calculated.

$2.19
See Also This Related BrainMass Solution

1. Two companies, A and B, have the following balance sheet accounts:

BELOW ARE TWO PROBLEMS THAT I NEED SOLVED. I HAVE ALSO ATTACHED A WORD DOCUMENT WITH THE PROBLEMS IN FORMAT THAT IS EASIER TO UNDERSTAND. THEY ARE ALSO LOCATED IN PDF FORMAT ON PAGE 170 THANKS.

1. Two companies, A and B, have the following balance sheet accounts:
A B
Current assets $ 150 $ 800
Fixed assets 300 2200
Current liabilities 75 600
Long-term debt 75 1000
Equity 300 1400
a. Compute values for all of the ratios that measure working capital for firms A
and B.
b. Compare Firm A to B with regards to its need for working capital and how it
finances its working capital (short-term vs. long-term financing).

2. The Latigo Company has the following financial information:
Sales $ 200
Cost of goods sold 100
Administrative expense 44
Depreciation 40
Interest expense 2
Tax 7
Net profit $ 7
Cash $ 5
Accounts receivable 20
Inventory 25
Fixed assets 50
Accounts payable 5
Note payable 15
Long-term debt 20
Equity 70
a. The current assets to sales ratio for the industry is 0.20. State whether Latigo
make more or less use of working capital than the industry.
b. Compute the working capital turnover for Latigo and for the industry.
c. Compute the operating cycle and the cash conversion cycle for Latigo.
d. The industry average cash conversion cycle is 112 days. Compare the industry
to Latigo and identify any inferences that you can make.

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