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Using balance sheets compute working capital
Course:- Business Management
Reference No.:- EM13836122




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Question: Using these balance sheets, compute working capital. Provide your analysis regarding working capital.

Apex Printing  Balance Sheets As of December 31, 2013 and 2012




000$  000$ 


Assets 
2013 2012
Cash 


6,000 5,700
Accounts Receivable 
2,350 2,300
Inventory 

12,100 6,500
Total  Current Assets 
20,450 14,500
  Land 


25,000 20,000
Building & Equipment 
300,000 300,000
Less:  Accumulated Depreciation - Building & Equipment  187,850 160,000
Total Long Term Assets 
137,150 160,000
Total Assets 

157,600 174,500

  Liabilities and Stockholders' Equity 







  Accounts Payable 

4,600 3,500
Salaries Payable 

0 2,100
Interest Payable 

1,500 0
Short Term Notes Payable 
12,000 0
Taxes Payable 

0 5,600
Total Current Liabilities 
18,100 11,200
  Mortgate Payable 

54,950 100,000
Total Long Term Liabilities 
54,950 100,000





 
  Common Stock 

60,000 60,000
Retained Earnings 

24,550 3,300
Total Stockholders' Equity 
84,550 63,300
Total Liabilities and Stockholders' Equity  157,600 174,500



Apex Printing 



Income Statements 



For the Periods Ended December 31, 2013 and 2012 




000$  000$ 




2013 2012
  Revenue: 

450,000 475,000
Less: Cost of Goods Sold 
324,300 374,500
Less: Depreciation Expense 
27,850 26,000
Gross Margin 

97,850 74,500
Selling, General & Administrative Expenses  29,100 32,000
Income Before Interest & Taxes  68,750 42,500
Interest Expense 

7,500 6,000
Income Before Taxes 
61,250 36,500
Income Taxes 

35,000 30,000
Net Income 

26,250 6,500



Apex Printing 




Statement of Cash Flows 



For the Period Ended December 31, 2013 





 000$
  Cash Flows from Operating Activities: 


Net Income 


26,250
Adjustments to reconcile net income to net cash provided by operating activities 
  Depreciation Expense 

27,850
  Increase in accounts receivable 
50
  Increase in inventory 

5,600
  Decrease in salaries payable 

2,100
  Increase in interest payable 

1,500
  Decrease in taxes payable 

5,600
 Increase in Short Term notes Payable 
12,000
  Increase in accounts payable 

1,100
Net Cash Flow from Operating Activities 

55,350

  Cash Flows from Investing Activities: 


  Cash paid to purchase land 

5,000
Net Cash Flow from Investing Activities 

5,000







    Cash Flows From Financing Activities: 


    Cash paid for mortgage 

45,050
  Cash paid for dividends 

5,000 50,050







    Net Increase in Cash 


300
  Plus:  Cash Balance at December 31, 2012 
5,700
Cash Balance at December 31, 2013 

6,000

PLEASE LET ME KNOW IF YOU CAN DO THIS ASAP!

Answered:-

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The Gross Working capital for APEX Printing increased by 41% in 2013 as compared to 2012 which shows that the company had increased investment in Current Assets. A careful analysis of the financial statements show that the increase in Current Assets was mainly driven by an increase in Inventory and a large part of the increased inventory was lying unsold by the end of 2013.

This implies that the overall efficiency of the company in terms of converting its inventory to sales (Inventory turnover ratio) deteriorated resulting in increased idle investment in Inventories which could have been used by the company for other possible investments. Thus, there is an opportunity cost associated with this decrease in company’s efficiency

Further, the Net Working Capital for the company took a severe hit in 2013 as compared to 2012 with the proportionate increase in current liabilities exceeding the proportionate increase in current assets. This poses serious threat to the short term liquidity of the company as the percentage amount of current assets available to meet its short term obligations (current liabilities) came down for the company.




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