During the wake of the financial crisis, Ben Bemanke, chairman of the rederal Re
ID: 2613916 • Letter: D
Question
During the wake of the financial crisis, Ben Bemanke, chairman of the rederal Reserve, sald that "shortening the cash cycde and better use of working capital" are the most important factors as prhvate-sector businesss strugpke to overcome the current economic vllatlity and difficulty in accessing capital markels (18 Global Business Services, "Managing Working Captital in the New Economic Considering how Important working capital management is, Spentwoarth Co decided to evaluate the amount of working capital being used in the firm and explore the prospects of how is workng capital wll be financed Spentworth Co reported the folowing results for current assels and Babiliies on its most recent balance sheets. Interestingly, the companys sales did not change-it reported sales of $11, 100 for its most recent year as well as for last year The columns labeled "Ending ($) show results at the end of the most recent year, and the columns labeled "Beginning ()" show resu ts at the end of the previous year seginning () Ending () Beginning () Ending (s) Current assels Current liabillies Cash Accounts receivable Inventory 2,600 5,000 3,900 5,000 Aacounts payable 4,000 Notes payable 3,400 Accruals 4,800 3,200 4,900 3,600 using the information given and a 365-day year, calculate days of warking capital, net working capital, and net operating working capital for Spentworth Co use your caloulations to complete the folowing statements: Spentworth Co.'s days of working capital improved from days in the previous year to days at the end of the most recent year at the end of last year . The companys net working capital increased frorm 33,500.0o in the previous year to Spentworth Co.'s net operating working capital increased from in the previous year to $7,500.00 at the end of last Consider the following stabement r Spentworth co overoptimizes its manufacturing process, reducing its goods-n-process inventory to beloxt industry levels, t would completely eliminate business risk spetworth Co. O This statement is false for Spentieworth Co O This stabement is true for Spentworth Co.Explanation / Answer
current assets
beginning
ending
cash
2600
5000
accounts receivables
5000
4000
inventory
3900
3400
total
11500
12400
current liabilities
beginning
ending
Accounts payable
4800
4900
notes payable
3200
3600
Accruals
0
0
total
8000
8500
Working capital = current assets-current liabilities
3500
3900
sales
11100
working capital turnover = sales/working capital
3.171429
2.846154
working capital in days = 365/working capital turnover ratio
115
128
1-
115 days in previous year to 128 at the end of current year
2-
Increase in net working capital from 3500 to 3900 in the current Year
3-
from 6700 in the previous year to 7500
6700
(2600+500+3900)-4800
4-
This statement is false spentworth co.
current assets
beginning
ending
cash
2600
5000
accounts receivables
5000
4000
inventory
3900
3400
total
11500
12400
current liabilities
beginning
ending
Accounts payable
4800
4900
notes payable
3200
3600
Accruals
0
0
total
8000
8500
Working capital = current assets-current liabilities
3500
3900
sales
11100
working capital turnover = sales/working capital
3.171429
2.846154
working capital in days = 365/working capital turnover ratio
115
128
1-
115 days in previous year to 128 at the end of current year
2-
Increase in net working capital from 3500 to 3900 in the current Year
3-
from 6700 in the previous year to 7500
6700
(2600+500+3900)-4800
4-
This statement is false spentworth co.
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