T-Mobile 8:18 PM @ 43% .- Chapter 14.docx CHAPTER 14-15 points Daniel Barnes, financial manager of New York Fuels (NYF), a heating oil distributor, is concerned about the company's working capital policy. NYF's most recent financial statements and key ratios, plus some industry average data, are given in the following table. Financial Statements and Other Data on NYF (S thousands) A. Balance sheet Cash and securities S 100 Accounts payable and accruals 300 Accounts receivable 500 Inventories 800 600 Notes payable (8%) Total current liabilities assets S1,700 Long-term deb Total current 600 (12%) Net fixed assets 1100 800 Common equity Total assets S2.500 Total liabilities and equity $2,500 B. Income statement S5,000.00 Variable costs (3,700.00) Fixed costs .000.00) EBIT Earnings before taxes Net income 300.00 Interest S 188.00 Taxes (40%) 75,20 S 112.80 Dividends (30%) S 33.84 Addition to retained earnings 78.96 C. Key ratios NYE Industry Profit margin Return on equity Days sales outstanding (360 days) 2.3% 3,0% 10.3% 15 .0% 43.2 days 30.0 days Accounts receivable turnover Inventory turnover 8.3x 5.0x 12.0x 7.5x Open With Print T-Mobile 8:18 PM @ 43% .- Chapter 14.docx Accounts receivable turnover Inventory turnover Fixed assets turnover Total assets turnover DebtAssets Times interest earned Current ratio Quick ratio 8.3x 12.0x 7.5x 6.0x 5.0x 6.3x 2.0x 56.0% 2.7x 2.5x 50.0% 4.8x 2.1x 0.9x 2.3x 1.3x You have been asked to answer the following questions to help determine NYF's working capital policy a. What is the company's inventory conversion period? (2 b. What is the company's receivables collection period? (2 c. What is the company's cash conversion cycle, assuminga points) points) 29-day payables deferral period? (2 points) d. How could the cash conversion cycle concept be used to help improve the firm's working capital management? (3 points) e. How does NYF's current working capital policy, as reflected in its financial statements, compare with an average firm's policy? ( points) f. Do the differences suggest that NYF's policy is better or worse than that of the average firm in its industry? (3 points) Open With Print