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 a big 2015 holiday sales season. In order to prepare for a big step-up in expected Q4 sales, they made the decision to increase product inventory during the Q3 period. They completed Q2 with dollar 461 M in cash and inventory of dollar 186.87 M (around 80 days of sales). In keeping with the above strategy, they grew inventory during Q3 to dollar 276 M (an increase of dollar 89.2 M) even though their sales were approx flat with Q2 at dollar 409 M. Net income from operations in Q3 was dollar 45.8 M Assuming all other balance sheet accounts remained flat, what changes would you estimate to Fitbit's case position at the end of Q3? (an increase of decrease? By roughly how much?) Note, however, that a close examination of their Q3 balance sheet, compared with Q2, shows that accounts payable rose from dollar 274M to 5421M, suggesting they have used the 'commercial credit' terms of their vendors to finance much of this inventory build. If you factor this into the above analysis, how would you now estimate Fitbit;s case position at the end of Q3? (an Increases of decreases? By rough how much?)

Explanation / Answer

       1 Changes in Q3 are $ Million a. Increase in inventory = $                89.13 Net income during the period                      45.80 Considering other things unchanged, the cash position at the end of Q3 will be : Details Amt Million $ Net Income during the period = $                45.80 Less Increase in inventory= $              (89.13) Net Cash flow Q3= $              (43.33) Cash balance Q2 end=                  461.00 Add Change in Cash position Q3=                  (43.33) Cash Position end of Q3= $              417.67        2 consider the added condition of increase Amt Million $ in Accounts payable by   $              147.00 the cash position at the end of Q3 will be : Details Amt Million $ Net Income during the period = $                45.80 Less Increase in inventory= $              (89.13) Add Increase in Accounts Payable $              147.00 Net Cash flow Q3= $              103.67 Cash balance Q2 end=                  461.00 Add Change in Cash position Q3=                  103.67 Cash Position end of Q3= $              564.67

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