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FIN 4100Spring 2016Evaluating and managing a firm’s cash cycleSelect a company that has inventory, accounts receivables and accounts payable on its balancesheet.Attach a copy of the company’s most recent annual balance sheet and income statementand do the following using those financial statements:1. Determine the company’s daily dollar volume of sales.2. Determine the company’s daily cost of goods sold.3a. Determine the company’s inventory turnover ratio.b. Determine the number of days’ sales the company holds in inventory (the average inventoryperiod).4a. Determine the company’s account receivable turnover ratio.b. What is the company’s average collection period?5a. Determine the company’s account payable turnover ratio.b. What is the company’s average payment period?6a. Calculate the company’s average operating cycle?b. Explain what “operating cycle” means.7a. What is the company’s average cash cycle?b. Explain what “cash cycle” means.8a. If the company’s cost to hold inventory is 20% per year, what is the annual cost to carryinventory?b. If the company’s to carry accounts receivable is 7.5%, what is the annual cost to carryaccounts receivable?c. If the costs the company saves by carrying accounts payable is 7.5%, how much savings doesthe company realize annually in financing costs by carrying accounts payable?9. What is the total annual cost associated with the company’s cash cycle?10. How much would the value in item 9 change if the company reduced its days sales ininventory and average collection period by 10% each and extended the time it takes to makepayments on its accounts by 5%?


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