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In this three-part Assignment, you will analyze the short-term and long-term capital position and needs of a company and will prepare an internal memo to the CFO, along with accompanying calculations to support your recommendations.
You will play the role of a consultant who has been hired by a mid-sized company that recently went public to provide some recommendations related to their short-term and long-term financial needs. Your first project is to analyze the short- and long-term capital budget needs of the company. You will prepare and submit a 3- to 5-page report, including an executive summary in which you synthesize your recommendations for the following fiscal year, along with the provided Excel spreadsheet with your calculations. Explain your findings and your recommendations.
For each of the items in your report, you will complete the calculations in the Module 3 Assignment Part 1 Template and will then use that financial information to develop your report to the owner using the Module 3 Assignment Part 2 Template. In your report, be sure to include relevant citations from the Learning Resources, the Walden Library, and/or other appropriate academic sources to support your work.
Submit your synthesis of financial data related to short-term financing needs for an organization, to include the following:
PART 1: SHORT-TERM WORKING CAPITAL CONSIDERATIONS (1–2 PAGES, PLUS CALCULATIONS IN EXCEL)
Analyze the differences between gross working capital, net working capital, and net operating working capital and their relationship to the cash conversion cycle.
The company owner is considering a new venture that would require an additional $50,000 every month in inventory from a supplier over the next year. (Note: Use your creativity to come up with such a venture that can serve as a basis for your recommendations.) Explain the various short-term financing options available, including the advantages and disadvantages of each source. What do you recommend and why?
Assume that the company has an inventory conversion period of 64 days, an average collection period of 28 days, and a payables deferral period of 41 days.What is the length of the cash conversion cycle?
If annual sales are $2,578,235 and all sales are on credit, what is the investment in accounts receivable?
How many times per year does the company turn over its inventory? Assume that the cost of goods sold is 75% of sales. Use sales in the numerator to calculate the turnover ratio.
Compare the cash conversion cycles of two competitors of your company using the following facts:
Competitor A
Inventory conversion period = 88 days
Average collection period (ACP) = 54 days
Payables deferral period = 30 days
Competitor B
Inventory conversion period = 90 days
ACP = 44 days
Payables deferral period = 30 days
Assume that the company’s sales are expected to increase from $5 million in 2020 to $6 million in 2021, or by 20%. Its assets totaled $3 million at the end of the prior fiscal year. The company is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2020, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 3%, and the forecasted retention ratio is 30%. Use the AFN equation to forecast the additional funds needed for the coming year.
The company’s leadership team is very concerned about funding growth with new debt, given the existing liabilities. Propose strategies the company might consider to reduce its AFN.
In your financial analysis, you have identified possible opportunities in Israel to expand operations. The company owner wants to know if it may be more advantageous to exchange U.S. dollars for Japanese yen first and then obtain Israeli shekels to invest. You observed that in the spot exchange market, 1 U.S. dollar can be exchanged for 3.58 Israeli shekels or for 109 Japanese yen. What is the cross-exchange rate between the yen and the shekel; that is, how many yen would you receive for every shekel exchanged?
Based on your calculations, what are the options available to the company and potential financial benefits of each? What strategy do you recommend?
Refer to the Week 6 Assignment Rubric for specific grading elements and criteria. Your Instructor will use this grading rubric to assess your work.
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