From that attached doc, can anybody explain how the purchase to payment values were derived. Thanks

• 85.17
• 72.42

MINI CASE: SCANDI HOME FURNISHINGS, INC. Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2010. Sales during the first full year (2011) of operation reached $1.3 million. Sales increased by 15 percent in 2012 and another 20 percent in 2013. However, profits after increasing in 2012 over 2011 fell sharply in 2013 causing Kaj to wonder what was happening to his \"pride and joy\" business venture. After all, Kaj has continued to work as close as possible to a 24/7 pace beginning with the startup of Scandi and through the first three full years of operation. Scandi Home Furnishings, located in eastern North Carolina, designs, manufactures, and sells Scandinavian-designed furniture and accessories to home furnishings retailers. The modern Scandinavian design has a streamlined and uncluttered look. While this furniture style is primarily associated with Denmark, both Norway and Sweden designers have contributed to the allure of Scandinavian home furnishings. Some say that the inspiration for the Scandinavian design can be traced to the \"elegant curves\" of art nouveau from which designers were able to produce aesthetically pleasing, structurally strong modern furniture. Danish furnishings and the home furnishings produced by the other Scandinavian countriesSweden, Norway, and Finlandare made using wood (primarily oak, maple, and ash), aluminum, steel, and high-grade plastics. Kaj grew up in Copenhagen, Denmark and received a college degree from a technical university in Sweden. As is typically in Europe, Kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After \"learning the trade,\" he quickly moved into a management position in the firm. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home furnishings business. At the same time, after traveling throughout the world including the U.S., he was sure that he wanted to be an entrepreneur in the United States. Thus, while it was hard to give up the Tivoli Gardens with its many entertainment and dining activities, as well as the other attractions in Copenhagen, Kaj moved to the U.S. in early 2010. With $140,000 of his personal assets, and $210,000 from venture investors, he began operations in mid-2010. Kaj, with a 40 percent ownership interest and industry-related management expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing. Following are the three years of income statements and balance sheets for the Scandi Home Furnishings Corporation. Kaj has felt that in order to maintain a competitive advantage that he would need to continue to expand sales. After first concentrating on selling Scandinavian home furnishings in the northeast in 2011 and 2012, he decided to enter the west coast market. An increase in expenses associated with identifying, contacting, and selling to home furnishings retailers in California, Oregon, and Washington. Kaj Rasmussen was hoping that you could help him better understand what has been happening to Scandi Home Furnishings both from operating and financial standpoints. SCANDI HOME FURNISHINGS, INC Income Statements Net Sales 2011 $1,300, 000 2012 $1,500, 000 Cost of Goods Sold Gross Profit Marketing 780,000 520,000 130,000 900,000 600,000 150,000 2013 $1,800, 000 1,260,0 00 540,000 200,000 1 General & Administrative Depreciation EBIT Interest Earnings Before Taxes Income Taxes (40%) 150,000 40,000 200,000 45,000 155,000 62,000 Net Income Cash Dividends $93,000 $0 150,000 53,000 247,000 57,000 190,000 76,000 $114,00 0 $74,000 200,000 60,000 80,000 70,000 10,000 4,000 $6,000 $0 SCANDI HOME FURNISHINGS, INC. Balance Sheets 2011 $50,000 200,000 450,000 700,000 300,000 $1,000,000 Cash Accounts Receivables Inventories Total Current Assets Fixed Assets, Net Total Assets Accounts Payable Accruals Bank Loan Total Current Liabilities Long-Term Debt Common Stock ($10 par)* Capital Surplus Retained Earnings Total Liab. & Equity $130,000 50,000 90,000 270,000 300,000 300,000 50,000 80,000 $1,000,000 2012 $40,000 260,000 500,000 800,000 400,000 $1,200,000 $170,000 70,000 90,000 330,000 400,000 300,000 50,000 120,000 $1,200,000 2013 $10,000 360,000 600,000 970,000 500,000 $1,470,000 $180,000 80,000 184,000 444,000 550,000 300,000 50,000 126,000 $1,470,000 Note: 30,000 shares of common stock were issued to Kaj Rasmussen and the venture investors when Scandi Home Furnishings was incorporated in mid-2010. A An analysis of the cash conversion cycle should also help Kaj understand what has been happening to the operations of Scandi. Prepare an analysis of the average conversion periods for the three components of the cash conversion cycle for 2011-2012 and 2012-2013. Explain was has happened in terms of each component of the cycle. Cash Conversion Cycle (in Days): Component 2012 2013 Days Inventory Outstanding (DIO) 192.64 159.33 Sale-to-Cash 55.97 62.86 Purchase-to-Payment (85.17) (72.42) Cash Conversion Cycle 163.44 149.77 Change ????? formula 2 The cash conversion cycle declined from 163.44 days in 2012 to 149.77 days in 2013 due to a sharp decline in the inventory-to-sale conversion period which more than offset an increase in the sale-to-cash conversion period and a decrease in the purchase-to-payment conversion period. B Kaj has been able to obtain some industry ratio data from the home furnishings industry trade association of which he is a member. The industry association collects proprietary financial information from members of the association, compiles averages to protect the proprietary nature of the information, and provides averages for use by individual trade association members. Over the 2011-2012 and 2012-2013 periods, the inventory-to-sale conversion period has averaged 200 days, while the sale-to-cash conversion period (days of sales outstanding) for the industry has averaged 60 days. How did Scandi's operations compare with these industry averages in terms of these two components of the cash conversion cycle? 3