It Assesses The Following Learning Outcomes Understand How P

It Assesses The Following Learning Outcomes Understand How Profit An

It assesses the following learning outcomes: · Understand how profit and losses relate to the operating cycle of the company and how the cash position and the operations cash flow determine the spontaneous and discretionary financing needs and mid-term business viability. · Demonstrate a deep understanding of the role of financial ratios like AR turnover, Inventory turnover or AP turnover and days to collect, days to inventory and days to pay. · Develop an understanding of real word budget issues. · Prepare cash Budgets and predict proforma Income Statement and Proforma Balance Sheet. LAUNCH: WEEK 10 / DELIVERY: Week 13, latest May 10th 2020, 23:59HRS ON MOODLE GMT+1 (Barcelona’s time). Submission file format: Word Document with all the answers plus the EXCEL file used to perform your calculations The assignment consists of 2 parts: Concepts included are in UNIT 5 Cash Budgets The assignment will be accepted in WORD format ONLY. It is mandatory to submit an EXCEL file where you explain the different calculations you made. So, both files have to be submitted. Calculation results HAVE TO be explained and the calculation steps explained CASE: 1) Lewis Printing has projected its sales for the first 8 months of 2014 as follows: Lewis collects 20 percent of its sales in the month of the sale, 50 percent in the month following the sale, and the remaining 30 percent 2 months following the sale. During November and December of 2013, Lewis’s sales were $220,000 and $175,000, respectively. Lewis purchases raw materials 2 months in advance of its sales. These purchases are equal to 65 percent of its final sales. The supplier is paid 1 month after delivery. Thus, purchases for April sales are made in February and payment is made in March. In addition, Lewis pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter beginning in March. The company’s cash balance as of December 31, 2013, was $28,000; a minimum balance of $25,000 must be maintained at all times to satisfy the firm’s bank line of credit agreement. Lewis has arranged with its bank for short-term credit at an interest rate of 12 percent per annum (1 percent per month) to be paid monthly. Borrowing to meet estimated monthly cash needs takes place at the end of the month, and interest is not paid until the end of the following month. Consequently, if the firm needed to borrow $50,000 during April, then it would pay $500 (=0.01*$50,000) in interest during May. Finally, Lewis follows a policy of repaying its outstanding short-term debt in any month in which its cash balance exceeds the minimum desired balance of $25,000. a) Lewis needs to know what its cash requirements will be for the next 6 months so that it can renegotiate the terms of its short-term credit agreement with its bank, if necessary. To evaluate this problem, the firm plans to evaluate the impact of a ±20 percent variation in its monthly sales efforts. Prepare a 6-month cash budget for Lewis and use it to evaluate the firm’s cash needs. b) Lewis has a $20,000 note due in June. Will the firm have sufficient cash to repay the loan? 2) Extract Gross Margin and Cost of Goods Sold from part 1. Assume that their relationship to sales doesn’t change over the contemplated period. a) Determine Inventory turnover and AR turnover b) How long is the operating cycle? c) Assume the operating cycle increases by 20% (x1,2) due to unforeseen reason, how will that impact the cash budget? d) What would be the probable effect on a firm’s cash position of the following events? 1) Rapidly rising sales 2) A delay in the payment of payables 3) A more liberal credit policy on sales (to the firm’s customers) 4) Holding larger inventories What conclusions can you draw from this exercise?

Paper For Above instruction

The purpose of this paper is to analyze the cash flow management, financial ratios, and operating cycle of Lewis Printing, a company with projected sales and financial activities for 2014, in the context of preparing a comprehensive cash budget and evaluating the company's liquidity and operational efficiency. The analysis will involve constructing detailed cash flow projections based on historical sales data, payment patterns, and expense obligations, as well as assessing the impact of various business scenarios on cash positions and operational metrics.

To address the first part of the assignment, the primary task involves developing a six-month cash budget for Lewis Printing. This entails calculating the expected cash receipts from sales, considering the collection percentages in the month of sale, the following month, and two months after sale, as specified. The cash disbursements include raw material purchases made two months in advance, paid one month after delivery, along with fixed expenses such as rent, other operational costs, and quarterly tax prepayments. Further, the analysis incorporates short-term financing needs, including borrowings at a specified interest rate, repayment policies, and the minimum cash balance requirements.

Building the cash budget requires computing projected sales, translating sales into cash inflows, estimating purchase payments, and incorporating fixed expenses. The impact of a ±20% variation in sales will be modeled to evaluate sensitivity, revealing how fluctuations in sales affect the firm's liquidity. In particular, the scenario analysis will show whether Lewis Printing might face cash shortfalls or surpluses under different sales levels, thereby informing credit negotiations and financial planning.

For the second question, the ability of Lewis Printing to meet its $20,000 debt obligation in June is assessed based on the projected cash balances. The analysis considers prior cash inflows, outflows, and any borrowing or repayment activities, providing insight into whether the company will have sufficient liquidity to honor its debt commitment.

Regarding the extraction of financial ratios, the gross margin and cost of goods sold are derived from the relation of sales to other known costs. These figures facilitate calculating inventory turnover, accounts receivable (AR) turnover, and the operating cycle. The operating cycle reflects the total time from inventory purchase to receivable collection. An increase of 20% in the operating cycle, due to unforeseen circumstances, demonstrates how delays or inefficiencies would extend cash conversion periods, potentially aggravating liquidity issues.

Finally, the impacts of various events on cash flow are analyzed: rising sales can increase cash inflows but also escalate inventory and receivables; delays in payable payments improve cash but strain supplier relationships; a more liberal credit policy can boost sales but reduce cash inflow speed; larger inventories tie up more cash, reducing liquidity. Through this comprehensive evaluation, strategic insights are gained into managing liquidity, optimizing operational efficiency, and adapting to changing business conditions.

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