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# Working Capital calculations for Latigo Company

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The Latigo Company has the following financial information:

Sales \$ 200

Cost of goods sold 100

Depreciation 40

Interest expense 2

Tax 7

Net profit \$ 7

Cash \$ 5

Accounts receivable 20

Inventory 25

Fixed assets 60

Total \$110

Accounts payable 5

Note payable 15

Long-term debt 20

Total Liab \$40

Equity \$ 70

Total Liab + Equity \$110

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.

E. Compute the cash flow for Latigo Company.

#### Solution Preview

a. The current assets are cash, accounts receivables and inventories. For Latigo the total current assets are 5+20+25=50. The sales are 200. The current assest to sales is 50/200=0.25. What this means is that Latigo uses \$0.25 of current assets for each \$ 1 of sales. The industry is 0.20. Latigo uses more current assets than the industry for each \$ of sale. If we use current assets as a proxy for working capital, then Latigo uses more working apital than industry

b. Working Capital Turnover is Sales/Working Capital. Since we ...

#### Solution Summary

The solution has details for calculating, working capital, cash conversion and operating cycle for Latigo Company

\$2.49