A/R A/P "A" COMPANY Inventory cycle Payroll cycle P & L: Sales 2850 - COGS 1425 =GP 1425 - SGA 1200 =OP Profit 225 BALANCE SHEET Terms Net 30 days Net 30 days 60 days Weekly Assets: Liabilities & Equity: Cash 25 N/P 100 A/R 375 A/P 188 Inv 375 ACC 5 C/A 775 CLTD 20 NFA 60 CL 313 Total Assets 835 LTD 222 N/W 300 TL+N/W 835 (Show all of your work - you may do this in Excel if you like) 1.) 2.) 3.) Does the Company collect? (Compute Days A/R Ch 10 page 3, compare with terms listed above) Does the Company pay?(Compute Days A/P Ch 10 page 3, compare with terms listed above) Does it control inventory? (Compute Days Inventory Ch 10 page 3, compare with terms listed above) ENT305 Cash Flow Week 1 Exercise 1 B. A/R INV A/P ACC QUALITY INDICATORS INV Game : INV VS A/P Terms vs. When Actually Collected Anyone can sell; can they collect? 30 days really equals 35-40 days Too long: bad management Too short: harassing customers Inventory Cycle vs. Actual Days on Hand Too short: stock-outs Too long: cannot get to cash Terms vs. Actual Days Too long: suppliers will cut-off : Too short: COD or discounts Payment Cycle vs. Actual Days Wages + Taxes + Interest Skewed days if interest is included : 7-15 days is normal COGS/Sales vs. Days Inventory If COGS/Sales rises and days inventory falls, hidden profits If COGS/Sales falls and days inventory rises, pretend profits General Rule: Inventory