Below you will see selected financial information from the year-end financial statements of ABC Corporation. The year 2022 was a year of growth. The company invested an extra $50,000 in a marketing campaign and the number of units sold during the year set a record. The company has two main suppliers of the parts used to make their product. Two customers comprise 40% of the companys revenue in 2022 and one of the customers became a new customer in 2022. Prepaids are comprised mainly of prepaid insurance. The accounting clerk decided to take advantage of a 2% discount in return for paying three years of premiums up front. Employees are paid on the last day of the month and so is rent so the only thing in accounts payable balance are invoices due to our product suppliers. The business is a seasonal business with sales peaking in spring and fall but slower in winter and summer.

1) What is the working capital position of ABC Corporation for 2021 and 2022? What challenges does this pose? Does the performance of the company in 2022 (income statement) justify the increased working capital?

2) What would concern you about accounts receivable? How does gross margin affect yourconcern about accounts receivable? How would you address these concerns?

3) Assume all sales are credit sales. What is the DSO for 2021 and 2002? How might you improve collection time on AR?

4) Was the decision to spend an extra $50,000 on marketing a good decision? What might you consider when making this determination?

5) Was the decision to prepay the insurance a good decision? Regardless whether your answer is yes or no, what unknown factors might change your mind about it?

6) Inventory levels are expanding. Assume it is all finished goods inventory. How many days of sales are in inventory? What concerns does this raise?

7) What are two possible valid reasons that the companys inventory levels may have grown so significantly.

8) What are at least two negative reasons that the companys inventory levels may have grown so significantly.

9) If you were in charge of the treasure function, what would your first thought be about the AP balance in 2022 compared to 2021?

10) You have joined the company last week. You are about to sit down with the owner to talk about 2023 planning and forecasting. The owner has expressed an interest in increasing marketing spending again in order to grow revenues. Name three points you would raise as concerns during this discussion (the three points should revolve around working capital accounts)