Change in net working capital calculationâââSamuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $930,000 and total current liabilities of $644,000.
As a result of the proposedâ replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted.
Account
Change
Accruals
+$43,000
Marketable securities
0
Inventories
-11,000
Accounts payable
+86,000
Notes payable
0
Accounts receivable
+148,000
Cash
+12,000
a. Using the informationâ given, calculate any change in net working capital that is expected to result from the proposed replacement action.
b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure.
c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cashâ flows? Explain.
Change in net working capital calculationâââSamuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $930,000 and total current liabilities of $644,000.
As a result of the proposedâ replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted.
| Account | Change |
| Accruals | +$43,000 |
| Marketable securities | 0 |
| Inventories | -11,000 |
| Accounts payable | +86,000 |
| Notes payable | 0 |
| Accounts receivable | +148,000 |
| Cash | +12,000 |
a. Using the informationâ given, calculate any change in net working capital that is expected to result from the proposed replacement action.
b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure.
c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cashâ flows? Explain.
Related questions
What are the coverage ratios for the following data (using formula below)? Please show how you came up with solution. Thank you Times interest earned = EBIT / Interest expense = ?? Times burden covered = EBIT / Interest + Principal repayment / 1 - tax rate = ??
| MICROSOFT CORP BALANCE SHEET | ||
| 2014 | 2015 | |
| Assets | ||
| Cash | ||
| Cash and cash equivalents | $8,669 | $5,595 |
| Short-term investments | $77,040 | $90,931 |
| Total cash | $85,709 | $96,526 |
| Receivables | $19,544 | $17,908 |
| Inventories | $2,660 | $2,902 |
| Deferred income taxes | $1,941 | $1,915 |
| Other current assets | $4,392 | $5,461 |
| Total current assets | $114,246 | $124,712 |
| Non-current assets | ||
| Gross property, plant and equipment | $27,804 | $32,337 |
| Accumulated Depreciation | -$14,793 | -$17,606 |
| Net property, plant and equipment | $13,011 | $14,731 |
| Equity and other investments | $14,597 | $12,053 |
| Goodwill | $20,127 | $16,939 |
| Intangible assets | $6,981 | $4,835 |
| Other long-term assets | $3,422 | $2,953 |
| Total non-current assets | $58,138 | $51,511 |
| Total assets | $172,384 | $176,223 |
| Liabilities and stockholders' equity | ||
| Liabilities | ||
| Current liabilities | ||
| Short-term debt | $2,000 | $7,484 |
| Accounts payable | $7,432 | $6,591 |
| Taxes payable | $782 | $606 |
| Accrued liabilities | $4,797 | $5,096 |
| Deferred revenues | $23,150 | $23,223 |
| Other current liabilities | $7,464 | $6,858 |
| Total current liabilities | $45,625 | $49,858 |
| Non-current liabilities | ||
| Long-term debt | $20,645 | $27,808 |
| Deferred taxes liabilities | $2,728 | $2,835 |
| Deferred revenues | $2,008 | $2,095 |
| Other long-term liabilities | $11,594 | $13,544 |
| Total non-current liabilities | $36,975 | $46,282 |
| Total liabilities | $82,600 | $96,140 |
| Stockholders' equity | ||
| Common stock | $68,366 | $68,465 |
| Retained earnings | $17,710 | $9,096 |
| Accumulated other comprehensive income | $3,708 | $2,522 |
| Total stockholders' equity | $89,784 | $80,083 |
| Total liabilities and stockholders' equity | $172,384 | $176,223 |
| MICROSOFT CORP INCOME STATEMENT | ||
| (USD in millions except per share data) | 2014 | 2015 |
| Revenue | $86,833 | $93,580 |
| Cost of revenue | $26,934 | $33,038 |
| Gross profit | $59,899 | $60,542 |
| Operating expenses | ||
| Research and development | $11,381 | $12,046 |
| Sales, General and administrative | $20,632 | $20,324 |
| Restructuring, merger and acquisition | $127 | $0 |
| Other operating expenses | $0 | $10,011 |
| Total operating expenses | $32,140 | $42,381 |
| Operating income | $27,759 | $18,161 |
| Interest Expense | $597 | $781 |
| Other income (expense) | $658 | $1,127 |
| Income before taxes | $27,820 | $18,507 |
| Provision for income taxes | $5,746 | $6,314 |
| Net income from continuing operations | $22,074 | $12,193 |
| Net income | $22,074 | $12,193 |
| Net income available to common shareholders | $22,074 | $12,193 |
| Earnings per share | ||
| Basic | $2.66 | $1.49 |
| Diluted | $2.63 | $1.48 |
| Weighted average shares outstanding | ||
| Basic | $8,299 | $8,177 |
| Diluted | $8,399 | $8,254 |
| EBITDA | $33,629 | $25,245 |
| MICROSOFT CORP CASH FLOW STATEMENT | ||
| (USD in millions except per share data) | 2014 | 2015 |
| Cash Flows From Operating Activities | ||
| Net income | $22,074 | $12,193 |
| Depreciation & amortization | $5,212 | $5,957 |
| Investment/asset impairment charges | $0 | $7,498 |
| Investments losses (gains) | -$109 | -$443 |
| Deferred income taxes | -$331 | $224 |
| Stock based compensation | $2,446 | $2,574 |
| Accounts receivable | -$1,120 | $1,456 |
| Inventory | -$161 | -$272 |
| Accounts payable | $473 | -$1,054 |
| Other working capital | $1,432 | $1,383 |
| Other non-cash items | $2,315 | -$436 |
| Net cash provided by operating activities | $32,231 | $29,080 |
| Cash Flows From Investing Activities | ||
| Investments in property, plant, and equipment | -$5,485 | -$5,944 |
| Acquisitions, net | -$5,937 | -$3,723 |
| Purchases of investments | -$72,690 | -$98,729 |
| Sales/Maturities of investments | $65,366 | $85,861 |
| Other investing activities | -$87 | -$466 |
| Net cash used for investing activities | -$18,833 | -$23,001 |
| Cash Flows From Financing Activities | ||
| Debt issued | $10,350 | $10,680 |
| Debt repayment | -$3,888 | -$1,500 |
| Common stock issued | $607 | $634 |
| Common stock repurchased | -$7,316 | -$14,443 |
| Excess tax benefit from stock based compensation | $271 | $588 |
| Dividend paid | -$8,879 | -$9,882 |
| Other financing activities | $461 | $4,843 |
| Net cash provided by (used for) financing activities | -$8,394 | -$9,080 |
| Effect of exchange rate changes | -$139 | -$73 |
| Net change in cash | $4,865 | -$3,074 |
| Cash at beginning of period | $3,804 | $8,669 |
| Cash at end of period | $8,669 | $5,595 |
| Free Cash Flow | ||
| Operating cash flow | $32,231 | $29,080 |
| Capital expenditure | -$5,485 | -$5,944 |
| Free cash flow | $26,746 | $23,136 |
I just need help with the chart at the bottom. Here is all the information for the company.
Accounts receivable for 2015__$300____
Total current assets= cash and marketable securities + account rec + inventory
1,542=347+a/r+895
Accounts rec = $300
Accounts payable for 2014__$319_____
Total Current Liabilities = Accrued Wages and taxes + Accounts Payable + Notes Payable
997 = 257 + Accounts Payable + 421
Accounts Payable = $319
c. Gross plant and equipment for 2015_$3,159______
Net Plant and Equipment = Gross Plant and Equipment â Depreciation
2,872 = Gross Plant and Equipment â 287
Gross Plant and Equipment = $3,159
d. Long-term debt for 2014__$132_____
Total Debt = Long-term Debt + Current Liabilities
1,129 = Long-term Debt + 997
Long-term Debt = $132
e. Common stock and paid-in surplus (250 million shares) for 2014 $300
Total Equity = Preferred Stock + Common Stock and paid surplus + Retained Earnings
1,472 = 30 + Common Stock and paid surplus + 1,142
Common Stock and paid surplus = $300
f. Total FA for 2015 $3,393
Total FA = Net Plant and Equipment + Other long-term assets
Total FA = $2,872 + 521
Total FA = $3,393
g. Net sales for 2015_______
Net Sales â Cost of Goods Sold = Gross Profit
Net Sales â 987 = 1,396
Net Sales = $2,383
h. Less: Cost of goods sold for 2014_______
Net Sales â Cost of Goods Sold = Gross Profit
2,018 - Cost of Goods Sold = 1,189
Cost of Goods Sold = $829
i. Less: Interest for 2015_______
EBIT- Interest = EBT
1,086 â Interest = 949
Interest = $137
j. Less: Taxes for 2015_______
Net Income = EBT â Taxes
644 = 949 â Taxes
Taxes = $305
k. Earnings per share (EPS) for 2015_______
Earning per share for 2015 = Net Income available to Common Stockholders / No of Common Stocks
Earning per share =566 / 250
Earning per share = $2.27 per share
l. Dividends per share (DPS) for 2014_______
Dividend per share = Common stock Dividend/ No of Common Stocks
Dividend per share = 219/250
Dividend per share = $0.88 per share
m. Book value per share (BVPS) for 2015_______
Book value per share= total common stockholderâs equity/No of Common Stocks
Book value per share= 1,789/250
Book value per share= 7.16
n. Net income $664
o. Increase in accrued wages and taxes $309-$257= $52
p. Increase in inventory â(895-797)= $ -98
q. Net cash flow from operating activities 664+287+52+62-41-98=$926
r. Increase in other long-term assets â(521-487)= $-34
s. Net cash flow from investing activities -343-34=-377
t. Increase in notes payable 492-421= 71
u. Pay dividends 98+219= 317
v. Net cash flow from financing activities 71+147-317= -99
w. Plus: Net income for 2015 $664
x. Preferred stock $98
Worldwide Widget Manufacturing, Inc.
| Company | Industry | Comparison | |
| Current Ratio | 2.2 times | ||
| Quick Ratio | 1.1 times | ||
| Cash Ratio | 0.35 times | ||
| Inventory Turnover | 2 times or 1 time | ||
| Days' sales in inventory | 135 days or 335 days | ||
| Average payment period | 110 days | ||
| Sales to working capital | 3 times | ||
| total asset turnover | 0.6 times | ||
| debt to equity | 1.1 times | ||
| profit margin | 16.5% | ||
| gross profit margin | 48.13% | ||
| ROA | 8.78% | ||
| ROE | 19.45% | ||
| Dividend payout | 32% |
A. Use the information found in Worldwide Widget Manufacturingâs financial statements to calculate all of the listed financial ratios in the above table for your company. Then, for each ratio, provide a comparison of the companyâs result with the industry standards, indicating if your companyâs results are lower than, higher than, slower than, or faster than the industry standards.
B. Calculate your companyâs internal and sustainable growth rates.
