Section 2: Working Capital Management (42 marks) Firms set policies on (investments, financing, inventory, payables and accounts receivable) to manage the cash available in the operations. The objective is to always have cash on hand to meet its obligations in a manner that is acceptable to all its stakeholders. With reference to the accounts for FastFix Auto Parts Ltd (FastFix), carry out some basic calculations (listed below) and comment on the changes in these ratios as to their affect on working capital. Then specifically list some actions that management could take to improve the cash situation. Fastfix Auto Parts Ltd Income Statement: for the period ending 31 December Sales COGS Other expenses Depreciation Total operational costs EBIT Interest expense EBT Taxes (40%) Net Income 2011 6.034,400 4.980,000 720,000 116.980 5.816.960 217,440 176,000 41,440 16.576 24.864 2012 7,035,600 5.800.000 612,960 120.000 6.532.960 502.640 80.000 422.640 169.056 253,584 Fastfix Autoparts Ltd Balance Sheet: As at 31 December 2011 2012 Cash 7.282 14.000 Short-term investments 20,000 71.632 Accounts Receivable 632,160 878,000 Inventories 1 28734 1.716.480 Total Current Assets 1.946.802 2.680.112 Net Fixed Assets 939,790 836.840 Total Assets 2.886,592 3.516,952 Accts payable Notes payable Accruals Total Current Liabilities Long-term debt Common stock Retained earnings Total equity Total Liabilities & Equity 324,000 720,000 284.900 1,328,960 1.000.000 460,000 97.632 557 632 2.886,592 359,800 300,000 380.000 1,039,800 500.000 1,680.936 296 216 1.977 152 3.516,952 Stock price No. of shares EPS DPS Book val. per share Lease payments Tax rate Other data 2011 $6.00 100.000 $0.25 S0.11 $5.58 40.000 40% 2012 $12.17 250.000 $1.01 S0.22 $7.91 40.000 40% (1 (1 Required Calculations a) Calculate the percentages changes from 2011 to 2012 for all 33 lines in the accounts listed above (use the Excel file provided). (16.5 marks) b) Calculate the following for both 2011 and 2012: i) Working capital (1 mark) ii) Current ratio mark) iii) Debt to total assets ratio mark) iv) Times interest earned (1 mark) v) Inventory turnover (1 mark) vi) Days sales in inventory (1 mark) vii) Accounts receivable turnover (1 mark) viii) Average collection period (1 mark) ix) Payables deferral period (1 mark) x) Cash conversion cycle (1.5 marks) c) Although net income has increased significantly in 2012 list and discuss three improvements and actions that management could take to make the working capital situation even better in 2013? (Your ratio calculations and percentage changes guide this answer) (15 marks)
