You are the Chief Financial Officer (CFO) of Companhia Siderrgica Nacional (CSN). This afternoon you played tennis

You are the Chief Financial Officer (CFO) of Companhia Siderúrgica Nacional (CSN). This afternoon you played tennis with a member of the company’s board of directors. Sometime during a break, the board member enthusiastically described a recent article she had read in a leading management journal.

This article noted several companies that had improved their stock price performance through effective working capital management, and the board member was intrigued. She wondered whether CSN was managing its working capital effectively and, if not, whether CSN could accomplish something similar.

How was CSN managing its working capital, and how does it compare to its competitors?

Upon returning home, you decide to do a quick preliminary investigation using information freely available on the Internet.

1. Obtain CSN’s financial statements for the past three years from Yahoo! Finance (finance

.yahoo.com).

a. Enter the stock symbol (CSNA3) in the “Quote Lookup” box and search.

b. Under “Financials,” click “Income Statement.” Copy and paste the statement into Excel (if using Internet Explorer, place the cursor in the statement and right-click the mouse, then choose “Export to Microsoft Excel” from the menu).

c. Go back to the Web page and under “Financials,” click “Balance Sheet”; repeat the download procedure for the balance sheet.

d. Copy and paste the balance sheet so that it is on the same worksheet as the income statement.

2. Obtain the competitors’ ratios for comparison from Yahoo! Finance (finance.yahoo.com).

a. Enter Gerdau S.A.’s stock symbol ( GGBR4 ) in the box at the top and click the search button.

b. Follow the steps in Part 1 to obtain “net receivables” and “inventory” from the most recent annual balance sheet, and “total revenue” and “cost of revenue” from the most recent annual income statement.

c. Repeat the two steps above for Usinas Siderúrgicas de Minas Gerais S.A. (USIM5).

3. Compute the cash conversion cycle for CSN for each of the last three years.

a. Compute the inventory days using “cost of revenue” as cost of goods sold and a 365-day year.

b. Compute accounts receivable days using a 365-day year.

c. Compute accounts payable days.

d. Compute the cash conversion cycle for each year.

4. How has CSN’s CCC changed over the last few years?

5. Compare CSN’s inventory and receivables turnover ratios for the most recent year to those of its competitors.

a. Compute CSN’s inventory turnover ratio as cost of revenue/inventory.

b. Compute CSN’s receivable turnover ratio as total revenue/net receivables.

c. Compute the average inventory turnover ratio and average receivable turnover ratio of Gerdau and Usinas Siderúrgicas de Minas Gerais. How do CSN’s numbers compare to the average ratios of its competitors? Do they confirm or refute your answer to Question 4?

6. Determine how CSN’s free cash flow would change if CSN’s inventory and accounts receivable balances were adjusted to meet the industry averages.

7. Determine the amount of additional free cash flow that would be available if CSN adjusted its accounts payable days to 75 days.

8. Determine the net amount of additional free cash flow and CSN’s cash conversion cycle if its inventory and receivables turnover ratios were at the industry average and its payable days were 75 days.

9. What are your impressions regarding CSN’s working capital management based on this preliminary analysis? Discuss any advantages and disadvantages of bringing the cash conversion cycle more in line with the industry averages.