As Fitbit, Inc entered the 3rd quarter of 2015, they were thinking two quarters

Question

As Fitbit, Inc entered the 3rd quarter of 2015, they were thinking two quarters ahead to big 2015 holiday sales season. In order to prepare for a big step up in eepected Q_4 sales, made the decision to increases product inventory during the Q3 period. They completed Q2 with $461M in cash and inventory of $186.87M (around 80 days of sales). In keeping with the above strategy, they grew inventory during Q3 to $276M (an increase of $89.2M) even though their sales were approx flat with Q2 at $409M. Net income form operations in Q3 was $45.8M Assuming all other balance sheet accounts remained flat, what change would you estimate to Fitbit's cash position at the end of Q3? Note, however, that a closer examination of their Q3 balance sheet, compared with Q2, shows that accounts payable rose from $274M to $421M, suggesting they have used the "commercial credit" terms of their vendors to finance much of ghis inventory build. If you factor this into the above analysis, how would you now estimate Fitbit's cash position at the end of Q3?

Explanation / Answer

Mio $ Net Cash at the end of Q2         461.0 Add:- Net Profit           45.8 Add:- Increase in Account payable         147.0 (421-274) Less:- Increase in Inventory         (89.2) Expected Net cash at the end of Q3         564.6

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