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Working Capital calculations for Latigo Company

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Please show work so I can understand how you arrived at your conclusions. Thanks

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 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.

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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

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See Also This Related BrainMass Solution

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

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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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