The company La Planetaria, S.A., presents you with the following income statement and additional information, so that you can support it with the calculations to make a decision on the planning of its cash management. La Planetaria, S.A. Income Statement 2020 Sales.................................................... $35'112,356.84 Cost of Sales.................................. 18'960,672.69 Gross Profit....................................... $16'151,684.15
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
PLEASE, PERFORM THE EXERCISE IN EXCEL AND SHOW THE FORMULAS
PLEASE, PERFORM THE EXERCISE IN EXCEL AND SHOW THE FORMULAS
PLEASE, PERFORM THE EXERCISE IN EXCEL AND SHOW THE FORMULAS
(Not written.. please)
2) The company La Planetaria, S.A., presents you with the following income statement and additional information, so that you can support it with the calculations to make a decision on the planning of its cash management.
La Planetaria, S.A.
Income Statement 2020
Sales.................................................... $35'112,356.84
Cost of Sales.................................. 18'960,672.69
Gross Profit....................................... $16'151,684.15
Operating Expenses.......................... 7'258,741.36
Operating Income......................... $ 8'892,942.79
Financial Expenses.............................. 2'940,168.18
UAIR(Integrated Risk Management Unit)........................................................ $5'952,774.61
In addition, the manager of La Planetaria, S.A., Mr. Gustavo Fiambres, reports that this company only sells on credit, and that its average customer balance is $829,041.76. The current accounts payable turnover is 8 times a year. The average inventory is $1'580,056.06.
They plan to make modifications to their policies so that they manage to decrease their PPC by 2.35 times, which will increase their days, but with inventories there is an opposite effect, their EPI increases by 5 days. On the positive side, you have successfully negotiated with your supplier to extend your payment terms by 10 days. With this data you have to calculate:
1) The operating cycle.
2) The cash conversion cycle.
3) The cash turnover.
4) The minimum cash balance.
5) Re-calculate the Operating Cycle, the CCE, RC and SMC by introducing the proposed changes.
6) Calculate the opportunity cost that the changes will cause, if the company's interest rate is 8½ %.
Note:
In the image, this is the original exercise, it is in Spanish, but it is easy to understand.
Very important Note:
It is necessary that you make a solution approach and then the result. Above all, to check the procedure and/or the formulas used, especially when you use excel.
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Formulas (those given to me by the professor, this to guide you as a bartleby expert.)
-Accounts receivable turnover
Sales (on credit) / Average customer balance.
-Average collection period:
360 /accounts receivable turnover
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-Inventory turnover
Cost of sales / average inventory
-Average inventory age
360/inventory turnover
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-Accounts Payable Rotation
STEP ONE: Determine Ending Inventory
STEP TWO: Determine Purchases
STEP THREE:
-Calculate accounts payable turnover.
Purchases / Average supplier balance
-Average payment period
360/accounts payable turnover
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Operating Cycle = Average age of inventory + Average collection period
Cash Conversion Cycle = Average payable period - Cash cycle
Cash Turnover = 360 / Cash Conversion Cycle
Minimum Cash Balance = Annual Expense / Cash Turnover
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