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3 Jan 2018

Achieving a lower inventory balance through working capital management can result in savings from both carrying costs and losses associated with obsolete inventory. True or false?

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Related questions

LIFO versus JIT

Assume you are the assistant controller of Thermo Company, which manufactures and sells hot and cold beverage bottles, food storage, and infant products, among other items. You are in charge of preparing the financial statements and tax returns. One of your colleagues, the assistant controller in charge of working capital management, has just returned from a three-day seminar on Just- In- Time (JIT) inventory. JIT reduces inventory carrying costs by having arrangements with suppliers to deliver inventory just as it is needed for production or sale. Your colleague is excited about implementing JIT, but you are concerned that all factors are not being considered. Your company has been using LIFO for about 25 years.

Prepare a 3-page memo to the controller outlining why you think JIT might be a bad idea for Thermo. Be sure to include the impacts on financial reporting and taxes, as well as any other impacts you foresee. Cite at least two peer-reviewed sources, in addition to the required readings for this module.

1) A company can improve its liquidity by increasing its accounts payable, while holding all else constant. Is this true or False?

2) The higher the times interest earned ratio, the more comfortable are a firm’s creditors in the ability of the firm to meet its interest obligations. Is this True or False?

3) A firm’s management analyzes financial statement’s so that:

a)they can get feedback on their investing, financing, and working capital decisions by identifying trends in the various accounts that are reported in the financial statements.

b) similar to shareholders, they can focus on profitability, dividend, capital appreciation, and return on investment.

c) they can get more stock options.

d) a and b.

A.) Explain the characteristics of a line of credit. What is it about these loans that make them by far the most popular type of short-term credit?

B.) When the economy is growing at a slow pace, it puts a damper on production and sales. This is due to the fact that many people are trying to build up their lives after the recession and do not spend as much as they would usually spend. When consumers spend less, businesses begin to suffer losses in profit. Working capital management ensures a company has enough cash flow to be able to pay their short-term debts and operating expenses. A slow-growing economy can diminish the importance of working capital management because interest rates are low, so monthly payments are low. It can also costs less to pay for operating costs, so a company does not have to maintain as much working capital. Even though the it is not needed as much, it is still important because without any working capital, the company would not be able to pay any debts or operating costs. The company will still need to have some working capital to keep running.

What are your thoughts, DO you agree or disagree? Elaborate and Explain

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