1. Explain if Apple Inc has too much, too little, or just the right amount of working capital? How did you make this determination? 2. Does Apple Inc need to shorten its cash conversion cycle and how do you know that (calculate the cash conversion cycle using the attached model)? 3. What working capital financing strategy is used by Apple Inc? What actual financial data support the conclusion? Make sure that you complete the analysis using the attached Excel model that examines a firm?s working capital financing strategy.

EXAMINING A FIRM'S WORKING CAPITAL FINANCING STRATEGY Working Capital Cash Marketable Securities Accounts Recevable Inventories Other Current Assets Other Current Assets Total Working Capital Short-term Financing $16,182.0 Trade Credit (Accounts Payable) Notes Payable $4,369.0 Short-term debt $6,405.0 Other short-term financing $3,093.0 $470.0 $12,576.0 $1,075.0 $4,021.0 $0.0 $21,235.0 $26,956.0 Total Short Term Financing Long-term Assets Fixed Assets $88,642.0 Other Long-term Assets $115,345.0 Total Long-term Assets $203,987.0 Long-term Financing $47,618.0 Long-term Debt $117,491.0 Other Long-term Financing $165,109.0 Total Long-term Financing. Total Assets $225,222.0 $192,065.0 Total Liabilities $33,157.0 Shareholders' Equity $225,222.0 Total Liabilities & Shareholders' Equity Company Verizon Source of Data http://finance.yahoo.com/q/bs?s=VZ+Balance+Sheet&annual Refer to Page 636 of Brigham & Ehrhardt, Financial Management, to see how to examine the strategy. MEASURING WORKING CAPITAL EFFICIENCY CASH CONVERSION CYCLE An Increasingly Popular Method for Evaluating a Firm's Effective Management of its Working Capital Takes the Approach that the Firm's Objective Should Be to Minimize Working Capital Subject to the Constraint That it has Sufficient Working Capital to Support the Firm's Operations. Minimizing Working Capital is Accomplished by Speeding Up the Collection of Cash from Sales, Increasing Inventory Turns, and Slowing Down the Disbursement of Cash. The Cash Conversion Cycle Incorporates All of These Factors in a Single Measure. The first model below calculates the Cash Conversion Cycle if the Days of Sales Outstanding, Days of Sales in Inventory, and Days of Payables are known. Insert those indicators in the yellow-coded cells and the model calculates the Cash Conversion Cycle. The second model below calculates the Cash Conversion Cycle using 4 indicators obtained from a company's financial statements - Total Sales, Total Inventory, Accounts Receivable, and Accounts Payable. Insert these amounts, for the past 3 years) in the yellow-coded cells and the model calculates the Cash Conversion Cycle for the past 3 years. EXAMPLES: The financial information used in the examples below are based on financial data from McCormick and Company, Inc. (MKC) for the years 2008. 2007, and 2006 obtained from Reuters.com. CALCULATE CASH CONVERSION CYCLE IF DAYS OF SALES OUTSTANDING, DAYS OF SALES IN INVENTORY, AND DAYS OF PAYABLES OUTSTANDING ARE KNOWN Cash Conversion Cycle = Days of Sales Outstanding Accounts Receivable (Sales / 365) CCC = 67.5 + Days of Sales in Inventory - + Inventories (Sales / 365) Days of Payables Outstanding Accounts Payable (Sales / 365) CALCULATE CCC IF DSO, DSI & DPO ARE KNOWN = 47.7 + 50.4 30.6 CALCULATE CCC USING FINANCIAL STATEMENT DATA Most Recent Year Total Sales Total Inventory Accounts Receivable Accounts Payable 2008 CURRENT YEAR $3,176.6 Days Sales Outstanding $439.0 Days of Sales in Inventory $414.7 Days of Payables Outstanding $266.1 Cash Conversion Cycle (Days) 47.7 50.4 30.6 67.5 CCC Total Sales Total Inventory Accounts Receivable Accounts Payable 2007 LAST YEAR $2,916.2 Days Sales Outstanding $430.2 Days of Sales in Inventory $456.5 Days of Payables Outstanding $243.3 Cash Conversion Cycle (Days) 57.1 53.8 30.5 80.5 CCC Total Sales Total Inventory Accounts Receivable Accounts Payable 2006 TWO YEARS AGO $2,716.4 Days Sales Outstanding $405.7 Days of Sales in Inventory $379.1 Days of Payables Outstanding $224.4 Cash Conversion Cycle (Days) 50.9 54.5 30.2 75.3 CCC