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Given Robinson’s 2010 and 2011 financial information presented in problems 2 and 4,
a. Compute its operating and cash conversion cycle in each year.
b. What was Robinson’s net investment in working capital each year?
Problem 2- The Robinson Company has the following current assets and current liabilities for these two years:
2010 2011
Cash and marketable securities $50,000 $50,000
Accounts receivable $300,000 $350,000
Inventories $350,000 $500,000
Total current assets $700,000 $900,000
Accounts payable $200,000 $250,000
Bank loan 0 150,000
Accruals 150,000 200,000
Total current liabilities $350,000 $600,000
If sales in 2010 were $1.2 million, sales in 2011 were $1.3 million, and cost of goods sold was 70 percent of sales, how long were Robinson’s operating cycles and cash conversion cycles in each of these years? What caused them to change during this time?
OC=(Accounts Receivable)/(Sales/365)+Inventory/(COGS/365)
OC_2010=300,000/(1,200,000/365)+350,000/(840,000/365)=243 days
OC_2011=350,000/(1,300,000/365)+500,000/(910,000/365)=299 days
CCC_2010=300,000/(1,200,000/365)+350,000/(840,000/365)-200,000/(840,000/365)=156 days
CCC_2011=350,000/(1,300,000/365)+500,000/(910,000/365)-250,000/(910,000/365)=199 days
Problem 4-Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2010 and $1,200,000 in 2011.
a. Calculate the inventory turnover for each year. Comment on your findings
Inventory turnover for 2010 =COGS/Inventory = $1,000,000/350,000=2.857
Inventory turnover for 2011 =COGS/Inventory = $1,200,000/500,000=2.4
b. What would have been the amount of inventories in 2011 if the 2010 turnover ratio had been maintained?
$1,200,000 /inventory =2.857
Inventory in 2011 to maintain 2010 turnover ratio = $420,021.00
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