Balance Sheet
2010 2011
Assets
Cash $166,800 $151,000
Prepaid expenses 81,000 73,000
Accounts receivable 19,500 45,000
Inventory 19,300 30,000
Long term investment 15,000 35,000
Capital assets 461,500 480,000
Accumulated amortization (101,500) (105,000)
Total Assets $661,600 $709,000
Liabilities and Shareholders' Equity
Accounts payable $37,100 $55,000
Accrued wages 15,000 25,000
Mortgage payable 232,000 232,000
Common shares 273,000 273,000
Retained earnings 104,500 181,000
Total liabilities and shareholders' equity $661,600 $709,000
Other information:
Sales 1,895,080 2,018,395
Net Income 530,000 612,000
Amortization 65,000 65,000
Required
a) Calculated the net working capital for 2010 and 2011
b) Calculate the days of working capital for 2010 and 2011
c) Calculate the companies cash conversion ratio for 2011
d) The company is considering changing its credit policy from net 30 to net 60 days. The company wants to maintain a return on assets of at least 15%. Would you recommend the change?
Provided below is information on 2011 operating results hypothetically altered to what would happen under the new policy.
Sales 2,300,000
Net Income 650,000
Accounts receivable 105,000
Total assets 789,000
e) The company's current annual purchases are 1,000,000, and current purchasing policy is 30 days. How much cash would it generate if it negotiated a 40 day policy?