Use the financial statements supplied below and on the next page for International Motor Corporation (IMC) to answer the following questions (see MyFinanceLab for the data in Excel format):
a. Calculate the cash conversion cycle for IMC for both 2015 and 2016. What change has occurred, if any? All else being equal, how does this change affect IMC’s need for cash?
b. IMC’s suppliers offer terms of net 30. Doest it appear that IMC is doing a good job of
International Motor Corporation
Income Statement (in millions)
For the Years Ending December 31
2015 | 2016 | |
Sales | $60,000 | $75,000 |
Cost of goods sold | 52,000 | 61,000 |
Gross profit | $8,000 | $14,000 |
Selling, general and administrative expenses | 6,000 | 8,000 |
Operating profit | $2,000 | $6,000 |
Interest expense | 1,400 | 1,300 |
Earnings before taxes | $600 | $4,700 |
Taxes | 300 | 2350 |
Earnings after taxes | $300 | $2,350 |
International Motor Corporation
Balance Sheet (in millions) as of December 31
2015 | 2016 | 2015 | 2016 | ||
Assets | Liabilities | ||||
Cash | $3,080 | $6,100 | Accounts payable | $3,600 | $4,600 |
Accounts receivable | 2,800 | 6,900 | Notes payable | 1,180 | 1,250 |
Inventory | 6,200 | 6,600 | Accruals | 5,600 | 6,211 |
Total current assets | $12,080 | $19,600 | Total current liabilities | $10,380 | $12,061 |
Net plant, property, and equipment | $23,087 | $20,098 | Long-term debt | $6,500 | $7,000 |
Total liabilities | $16,880 | $19,061 | |||
Total assets | $35,167 | $39,698 | Equity | ||
Common Stock | $2,735 | $2,735 | |||
Retained Earnings | $15,552 | $17,902 | |||
Total Equity | $18,287 | $20,637 | |||
Total liabilities and equity | $35,167 | $39,698 |
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Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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