Anyone can help me for thiswith typing(question 7 a&b) please, need it asap!!! (

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Anyone can help me for thiswith typing(question 7 a&b) please, need it asap!!! (finance-working capital management) THANKS!!!!!!!!!!

7. Use JW Inc.s financial statements to calculate the following The current ratio, quick ratio, NWC, and WCR. Discuss the observed 2-year trend The CCC and its components. Discuss the observed 2-year trend a. b. JW, Inc.: Income Statement 2016 2015 Sales COGS Gross Profit Operating Expenses Depreciation EBIT Interest Expense EBT Taxes NI Dividends ARE 5,700.00 $ 4,560.00) 1,140.00 ($ 500.00) ($ 27.00) $613.00 ($ 35.00) 578.00 ($ 231.20) $ 346.80 5,050.00 $ 4,040.00) $1,010.00 ($ 420.00) $ 26.00) $394.00 ($30.00) 364.00 ($145.60) $ 218.40 $ 346.80 $ 218.40

Explanation / Answer

For Question 7 a) below is the response:

Current Ratio = Current Assets / Current Liabilities

Based on above formula, we will calculate current ratio for both years 2015 and 2016:

1. Current Ratio for 2016 = $1514.80 / $371 = 4.0830 (Total Current Assets = $1514.80, Total Current Liabilities = $371)

2. Current Ratio for 2015 = $ 960 / $360 = 2.6667 (Total Current Assets = $960, Total Current Liabilities = $360)

As you can see above, The Current Ratio has increased from 2015 to 2016, mainly because of increase in Current Assets. This increase in Current Assets is dominated by increase of Cash & Equivalents. Financially, increase in current ratio is good sign for the company.

Quick Ratio = (Cash & Equivalents + Short Term Investments + Accounts Receivables)/Current Liabilities

Based on above formula, we will calculate Quick ratio for both years 2015 and 2016:

1.Quick Ratio for 2016 = ($714.80 + $500) / $371 = 3.2744 (Cash & Equivalents = $714.80, Accounts Receivables = $500, Current Liability = $371)

2. Quick Ratio for 2015 = ($120 + $500) / $360 = 1.7222 (Cash & Equivalents = $120, Accounts Receivables = $500, Current Liability = $360)

Quick Ratio, also known as Acid Test Ratio is a measure of liquidity of the company. It measures a company's ability to pay off the current liabilities using the current assets. In this case, as you can see the increase in quick ratio from 1.7222 to 3.2744. It indicates that the company's ability to pay off the current libilities with the current assets has significantly improved.

NWC(Net Working Capital) = Current Assets - Current Liabilities

Based on above formula, we will calculate NWC for both years 2015 and 2016:

1. NWC for 2016 = $1514.80 - $371 = $1143.80  (Total Current Assets = $1514.80, Total Current Liabilities = $371)

2. NWC for 2015 = $960 - $360 = $ 600  (Total Current Assets = $960, Total Current Liabilities = $360)

NWC is an indicator of how efficient is the business and how financially sovent it is in Short term. As you can see that the NWC has increased from 2015 to 2016. This means that the company has short term liquidity to pay off the short term obligation as well as invest in the business.

WCR (Working Capital Ratio) is another name for Current Ratio. It is mentioned and explained at the start of this answer.

For Question 7 b) below is the response:

Cash Conversion Cycle = Days of Sales Outstanding + Days of Inventory Outstanding - Days of Payables Outstanding

In the above formula, the three components on Right Hand Side are calculated as below:

Days of Sales Outstanding = (Account Receivable/Total Credit Sales)*365 days

Days of Inventories Outstanding = (Inventory / Total Cost of Sales or COGS)*365 days

Days of Payable Oustanding =[Accounts Payable/( Total Cost of Sales or COGS/365 Days)]

Now using above formulas we will calculate CCC for 2015 and 2016.

For 2016:

Days of Sales Outstanding = ($500/$5700)*365 Days = 32 Days

Days of Inventory Outstanding = ($300/$4560)*365 Days = 24 Days

Days of Payables Outstanding = [$320/($4560/365 Days)] = 25 Days

Hence CCC = 32+24-25 = 31 Days

For 2015:

Days of Sales Outstanding = ($500/$5050)*365 Days = 36 Days

Days of Inventory Outstanding = ($340/$4040)*365 Days = 30 Days

Days of Payables Outstanding = [$300/($4040/365 Days)] = 27 Days

Hence CCC = 36+30-27 = 39 Days

Cash Conversion Cycle measures the days company takes to convert its investments and resources into cash. Ideally the CCC number for the company should be lower for efficient functioning of the company. As you can see, in 2015 the CCC was 39 Days and in 2016 the CCC was 31 days. That means the company has made its functions more efficient and effective in order to convert its resources into cash faster.

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