1.15 activity (working capital) ratios

Please download to get full document.

View again

of 33
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Similar Documents
Information Report
Category:

Education

Published:

Views: 0 | Pages: 33

Extension: PDF | Download: 0

Share
Description
1. 1.15 Activity/ Working Capital ratios 2. “ 2 Learning outcomes  Identify financial ratios  Use financial ratios for analysis DOWNLOAD MATERIALS: 1.15 Study…
Transcript
  • 1. 1.15 Activity/ Working Capital ratios
  • 2. “ 2 Learning outcomes  Identify financial ratios  Use financial ratios for analysis DOWNLOAD MATERIALS: 1.15 Study guide: Activity / Working Capital Ratios NEW: Apple Inc FS Industry Average
  • 3. “ 3 Managing your priorities If you are to set a deadline for the following activities, how many days will you set for each of the activities to be completed?
  • 4. “ 4 Managing your priorities Days to collect payment from clients - Days to get a product to sell - Days to delay payment to suppliers/ vendors
  • 5. “ 5 Managing your priorities We will review these decisions later after the class.
  • 6. “ 6 Why do you think the “BUY NOW PAY LATER” selling tactic works? What is the implication of this tactic to a business?
  • 7. “ 7 Today’s ratios: Activity and Working Capital Ratios serves as an indicator of day today operational performance especially in inventory movement, collection of credit and efficiency in operations. These ratios can have a huge impact on cash flow.
  • 8. “ 8 Inventory turnover is a measure of the number of times inventory is sold or used in a given time period such as one year. It is a good indicator of inventory quality (whether the inventory is obsolete or not), efficient buying practices, and inventory management.
  • 9. “ 9 . This ratio is important because gross profit is earned each time inventory is turned over. Also called stock turnover.
  • 10. “ 10 REFER to the APPLE INC Financial Statements Compute for the Accounts Receivable Turnover for both 2018 and 2017 Wait for your name to be called
  • 11. “ 11 Inventory turnover = Cost of Goods Sold / Inventory Inventory turnover = 163,756 / 3,956 Inventory turnover = 41.4 or 41 times inventory is sold in a business year 2018
  • 12. “ 12 The number of days in the period can then be divided by the inventory turnover formula to calculate the number of days it takes to sell the inventory on hand or "inventory turnover days": Days in Inventory = 365 / Inventory Turnover Days in Inventory = 365 / 41 Days in Inventory = 9 days, it takes 9 days for Apple to deplete its inventories in sales
  • 13. “ 13 Compute for the Inventory Turnover Ratio and Days in inventory for the year 2017 Ans. 29 times, 12 days
  • 14. “ 14 Knowing how many days it takes to move a product allows you to:  Anticipate number of times you need to order from suppliers ▰Project sales in units ▰Budget the cash coming in from sale of inventory
  • 15. “ 15 Accounts Receivable Ratio The receivable turnover ratio (debtors turnover ratio, accounts receivable turnover ratio) indicates the velocity of a company's debt collection, the number of times average receivables are turned over during a year.
  • 16. “ 16 Accounts Receivable Ratio ▰This ratio determines how quickly a company collects outstanding cash balances from its customers during an accounting period. It is an important indicator of a company's financial and operational performance and can be used to determine if a company is having difficulties collecting sales made on credit.
  • 17. “ 17 Accounts Receivable Ratio = Sales / Accounts Receivable Accounts Receivable Ratio = 265,595 / 48,995 Accounts Receivable Ratio = 5 times in a business year that Apple was able to collect sales on credit
  • 18. “ 18 Days in Receivable Ratio measures the length of time (in days) the accounts receivable are collected and converted to cash Days in Receivable Ratio = 365/Accounts Receivable ratio Days in Receivable Ratio = 365 /5 Days in Receivable Ratio = 73 days, it takes 73 days to collect and convert accounts receivable into cash
  • 19. “ 19 Compute for Accounts Receivable Ratio for 2017 and Days in Receivable Accounts Receivable Ratio = Sales / Accounts Receivable ▰ANS: 6.42 , 56 days
  • 20. “ 20 Put together the number of days to make a sale and the days of inventory and days in receivable, how many days is Apple out of cash? 9 days to sell 73 days to collect = 82 days out of cash
  • 21. “ 21 • Being out of cash means there is need to get the company’s cash from somewhere else like borrowing it, selling stock or delay paying its suppliers/vendors for as long as possible
  • 22. “ 22 Accounts Payable Ratio Accounts payable turnover ratio is an accounting liquidity metric that evaluates how fast a company pays off its creditors (suppliers).
  • 23. “ 23 Accounts Payable Ratio The ratio shows how many times in a given period a company pays its average accounts payable. An accounts payable turnover ratio measures the number of times a company pays its suppliers during a specific accounting period.
  • 24. “ 24 Accounts Payable Ratio = COGS / Accounts Payable Accounts Payable Ratio = 163,756 / 55,888 Accounts Payable Ratio = 2.9 times in a business year that Apple pay its vendors/suppliers
  • 25. “ 25 Days in Payable Ratio measures the length of time (in days) the accounts payable are paid Days in Payable Ratio = 365 / Accounts Payable Days in Payable Ratio = 365 / 2.9 Days in Payable Ratio = 125 days, it takes 125 days to pay its obligations in accounts payable
  • 26. “ 26 Accounts Payable Ratio = COGS / Accounts Payable Compute for accounts payable ratio and days for 2017 ANS: 2.87, 127 days in accounts payable
  • 27. “ 27 What can happen if it takes a company too long to pay its accounts payable?
  • 28. “ 28 • Although it is good to delay payment of accounts receivable, note that the relationship with your vendors and suppliers are at stake if it takes you too long to pay your obligations.
  • 29. “ 29 Putting this all together gives us the CASH CONVERSION CYCLE, it is the length of time the company is out of cash due to the time it takes to sell its products, collect its receivable and the fact that the suppliers want to be paid the sooner rather than later. Businesses want the lowest possible cash conversion cycle – meaning they are out of cash for a short amount of time.
  • 30. “ 30 Cash Conversion Cycle = (Days in Inventory + Days in Receivable) – Days in Payable Cash Conversion Cycle = ( 9 + 73 ) – 125 Cash Conversion Cycle = - 43 days What is your assumption from the cash conversion cycle of Apple? What is your recommendation?
  • 31. “ 31 Cash Conversion Cycle = (Days in Inventory + Days in Receivable) – Days in Payable Cash Conversion Cycle = ( 9 + 73 ) – 125 Cash Conversion Cycle = - 43 days What is your assumption from the cash conversion cycle of Apple? What is your recommendation?
  • 32. “ Connect learnings today to your performance task. *Answer your PETA file, fill out the Asset and Fixed Asset turnover ratios based on the financial statements of Glow&Co Company Complete the computations as we finish each topic 32
  • 33. End of 1.1533
  • We Need Your Support
    Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

    Thanks to everyone for your continued support.

    No, Thanks
    SAVE OUR EARTH

    We need your sign to support Project to invent "SMART AND CONTROLLABLE REFLECTIVE BALLOONS" to cover the Sun and Save Our Earth.

    More details...

    Sign Now!

    We are very appreciated for your Prompt Action!

    x