At the recent board meeting, several board members expressed concerns about current financial situation of the company. Of particular concern was sub performance on return of assets and ability to generate enough cash for future expansion. Like many big corporations, this company, a global company with consumer goods with major markets in the United States, had gone through the Pandemic related challenges. After many struggles coping with the unprecedent supply chain related issues, the Board is in a position to launch ambitious expansion plan to recapture the market share that they lost last three years. A few new product designs are on the table for discussion. After a lengthy discussion, the Board decided to launch two new product lines. It was a unanimous decision of the Board that these two product lines will be manufactured in the United States to avoid geopolitical issues currently being raged in this country with China. The Board is also of the opinion that the existing supply chain infrastructure must be re-designed to compete effectively against potential competitors. A substantial investment is required to implement this new venture. The Chief Supply Chain Officer (CSCO), Chief Financial Officer (CFO) and Chief Procurement Officer (CPO) briefed the Board of the current financial picture and supply chain related procurement situations. With some reluctance, CSCO agreed that foreign sourcing is inevitable as new product lines require substantial amount of oversea sourcing primarily from China. CFO presented three possible sources to finance the new initiatives (they are not mutually exclusive); financing through equity, debt and retained cash. The CFO gave pros and cons of each financing option, and suggested equity financing in addition to additional cash generating through supply chain optimization. His suggestion is based on the current financial market where interest rates have been steadily rising over the last 12 months. After extensive discussions with CFO, CSCO and CPO, the Board requested the recent financial information relevant to two financing options; equity and additional cash to be generated through supply chain optimization.

CFO presented the most recent financial information as follows (all $million). Sales ($84,343), cost of goods sold ($42,972), account receivable ($9,269), account payable ($17,759), inventory ($10,101), fixed asset ($82,767), cash on hand ($19,584), direct expense ($9,500), and indirect expense ($5,937). The Chair of the Finance Committee insists that in order to attract enough investors, the return of asset (ROA) has to be at least 25% and the company needs to generate at least $500 million additional cash surplus through supply chain operations especially optimizing inventory, account receivable and account payable.

Provide working process to calculate ROA and additional cash surplus through supply chain operations. Use 365 working days. Do you think the company has enough resources and talent to meet the minimum threshold values (25% of ROA and at least $500 million extra cash)? Provide a process that leads to your conclusions (answers). Suggestion: Calculate the status of ROA and additional cash generated. If your answers fall short of the targets (25% ROA and $500 million extra cash), make suggestion(s) what area(s) you would like to improve to generate the minimum requirements.