Task: Use the information below to answer the given questions.
Question 1. Convert the asset portion of the firms balance sheet into its daily equivalent. How many days does the firm have in its asset "cash -to-cash" cycle? How can the firm make the number of days less?
Question 2. Convert the short tem liabilities on the balance sheet into their daily equivalents. How many days are in the firms liability "cash-to-cash" cycle? How can the firm make the number of days less?
Question 3. Using your answers from 1 and 2 , determine the number of days that the firm may need to finance itself durring the cash-to-cash cycle. How can this number be used to determine the amount of external financing neccessary?
Exhibit 1:
McGhee Corporation. Balance Sheet, December 31, 2003.
Cash $140,000
Accounts receivable $1,225,000
Inventory $875,000
Current assets $2,240,000
Net Fixed assets $2,135,000
Total Assets $4,375,000
Accounts payable $700.000
Accruals $140,000
Notes payable-bank $788,000
Current maturities of LT Debt $87,500
Current liabilities $1,715,000
Long-term debt $962,500
Commom stock &PIC $297,000
Retained earnings $1,400,000
Total liabilities & equity $4,375,000
Exhibit 2:
Selected Income Statement Information, December 31,2003,
Sales Revenue, net $15, 968,750
Cost of Goods Sold, net $10,675,000
Purchases, net $11,252,500
Operating expenses 462,500