Sunday, January 26, 2020
Assessing And Solving Ethical Dilemmas Philosophy Essay
Assessing And Solving Ethical Dilemmas Philosophy Essay Honesty is the cornerstone of character. The honest man or woman seeks not merely to avoid criminal or illegal acts , but to be scrupulously fair, upright, fearless in both action and expression .Honesty pays dividends both in dollars and in peace of mind. B.C Forbes What are Ethical dilemmas Ethical dilemmas occur generally when a person is made to choose between two or more alternatives and all of them seem right from different perspectives. Such dilemmas have a very blurred line between right and wrong thus complicating the decision making process for a person. Sometimes its not even a question of right or wrong but which of the alternatives is more viable. Decision is further made difficult by the varying amount of impact of each decision on the profitability, share price, market share, competitiveness, relations and various other factors. For e.g. should wealthier person be forced to pay more taxes for poor people in the society. Why ethical dilemmas exist For any organization, its difficult to maintain harmony as opinions of individuals vary, stakes are high and emotions run strong. This may give rise to ethical issues which in turn can become ethical dilemmas, also known as ethical paradox. Let us first try to understand as to how ethics can be maintained in an organization as well as individual: Justice It talks about rights and laws, rules and regulations, fairness etc. The good thing about it is that it accentuates on equality and believes in providing justice to all irrespective of any cast, creed etc. This helps in establishing ethical standards and the enforcement may cause people or organization to abide by the law and remain ethical. Care Nothing can beat positive organizational climate and the value for each others feelings. Strong personal connections and trust over each other may make ethical decisions simpler by simplifying the lines between good and bad. Power Sometimes power and influence and the resultant fear to abide by the rules and regulations keep people on track. If the autocratic behavior of a leader denounces unethical steps then it makes his/her followers also to choose the correct path guided by him. Community These days we find the topic of Corporate Social Responsibility being taken up very seriously by the organizations. To keep themselves in the good books of community, the firms have started acting in the welfare of community which itself closes some unethical measures by company. Profession One cant deny clashes between personal and professional codes. Both the employee and employer should be careful in choosing each other else it will lead to lot of unrest and instability to both the parties. Differences and issues related to work work give rise to conflicts. The differences can come from various factors like working style, personal differences etc but if the difference is due to an ethical clash, then it can have serious repercussions. The following diagram shows us that an individual does have ethical issues with the organization on whole or with the team due to which he may not be able to deliver his 100% best in the work he undertakes. How to resolve ethical dilemmas As such there are no fixed rules to decide what is to be followed in case of ethical dilemmas. As stated earlier its not just about right or wrong decisions but taking a decision which one feels is more appropriate in a given context. However there are some methods suggested by various people in the field of business ethics for deciding which better decision to be chosen by an organization or individual under given circumstances. For e.g. Organizations and individuals can choose to follow many of the suggested ethical theories for moving ahead with their decisions. But the most useful and most effective method of choosing an ethical decision seems to be finding a similar example of ethical dilemma in past with any other individual or organization. Analyzing the actions, the reasons for actions the consequences of those actions which took in the past gives us a very good idea about the direction in which a person should proceed in case of ethical dilemmas. Therefore before deciding o n any plan of action a person must analyze all the possible consequences of the act and must check for how are the actions in line with the moral values and principles governing the organization or individual. Few of the right consequences by taking right decision can be: Substantially improve society. Help maintaining a moral course in turbulent times Cultivate strong teamwork and productivity Support employee growth and meaning An insurance policy they help ensure that policies are legal Promote a strong public image Ethical dilemmas from Hindu epics In this part of the project we would describe the various ethical dilemma situations from the Hindu epics of Mahabharata and Ramayana. The situations described are very much character centric and hence each situation would be described in context of the character. But these situations from these epics can very clearly be seen even in present conditions across the world at individual level, family level, organization level or country level. Following are the characters and their ethical dilemma situations from epics : Bhishma : Bhishma also known as Gangaputra, meaning the son of Ganges (the holy river). The context of ethical dilemma being mentioned here with Bhishma is about his fighting the war of Mahabharata from the side of Kauravas while he always wanted the victory of his opponents Pandavas. This ethical dilemma shows how even a very powerful and highly knowledgeable person like Bhishma do fall in the ethical dilemma trap and are not able to make out clearly that which of the decisions are better to go with. Lets analyze the ethical dilemma of Bhishma on following criteria. Why such a dilemma happened Bhishma was an obedient son. He during the reign of his father, Shantanu took a pledge that he will always abide by the orders of the king. He also pledged that he will never marry and wont ever become the king himself. So at the time of Mahabharata war he was in dilemma because he was binded by his pledge towards following the orders of king and hence to fight the war from the side of Kauravas but at the same time he knew very well that objective of Kauravas for the war was not good. He knew that Pandavas are the true people for owning the throne of Hastinapur. He was actually confused between whether it is right to break his earlier pledge of obedience for what he considered right or to blindly follow his pledge. This is a perfect example of a manager in present condition who is trapped in a quandary to follow or refuse the decision by top management if he finds them in conflict with his own ethics though following them might pave way for his lucrative career. Consequences of Decision As per his decision of fighting for Kauravas against Pandavas, finally Bhishma lost the fight with Arjuna and died after the war was over. During his last moments he mentioned that it was a mistake on his part to consider himself above the nation or taking the side of an army which was not fighting for good reason. Conclusion By analyzing the character of Bhishma , we can conclude that though his intentions for serving his king were good but he made a mistake by blindly following it without reflecting on his decisions from time to time. He should have realized that welfare of the kingdom is an insurmountable purpose in priority and his personal decisions shouldnt defeat it. This lesson can be implemented in present scenario when an individual feels obliged on joining an organization and stops thinking if the organization is leading in the right path. He has to rationally figure out if the managerial decisions: legitimizes managerial actions strengthens the coherence and balance of the organizations culture improves trust in relationships between individuals and groups Supports greater consistency in standards and qualities of products/services. Cultivates greater sensitivity to the impact of the enterprises values and messages. An analogy with Corporate real life case Hyundai Chairperson went to jail for embezzlement and breach of trust Problem: In late April 2006, Hyundai Motor Company chairman, Chung Mong-koo was arrested. This example would show us that the society interest prevails over individuals interest. Problem Details: The following month he was accused on charges of breach of trust, embezzling company funds, and causing damage to companies in the Hyundai group. Consequences: In April 2006, the directors of Hyundai apologized to the public and said the Chung family would donate assets worth Won 1 trillion to society. In June 2006, Chung appeared in court and admitted his guilt to a certain extent Karna : Eldest of the Pandava brothers, but not known to any of his brothers. Loyal friend of Duryodhana. Ethical dilemma of karna has been analyzed on following basis : Why such a dilemma happened Karna was son of Kunti (Mother of pandavas). He was born before kuntis marriage and hence because of fear of social repubation, kunti floated the child in the river. Karna was brought up by Adhirath, the chariot driver of king. Karna was supported by Duryodhan when he was not accepted by anyone else. Duryodhana made him king of Ängdesh. All these benefits by Duryodhan made karna indebted to him. For rest of his life karna promised to be loyal to Duryodhan in return of all these benefits. Here again we can see that an issue of loyalty against moral values of karna coming into play. This is because karna was always aware of what is morally right and what is morally incorrect but because of his loyalty to Duryodhana he decided to remain loyal in place of being morally correct in his own eyes. Consequences of Decision As a consequence of his decision to remain loyal to a person (Duryodhan) instead of being moral or doing what is in benefit of larger people, Karna fought in the Mahabharata war from side of Kauravas. He was finally killed by Arjuna. Conclusion Here also we see that karna was considering his loyalty towards a person (Duryodhana) to be more important than his moral values and doing the things for betterment of larger people. This analogy of karna can very well in this context be related to the way employees of Enron remained loyal to their top management by concealing the actual condition of the organization from the larger number of stakeholders. They did not go for morally correct decision of informing the condition of the degrading organization to the stakeholders. An analogy with Corporate real life case Dell Investors filed suit Over Accounting Practices Problem: A group of investors had filed a lawsuit in Feb, 2007 alleging that Dell had used illegal accounting methods to hide secret kickback payments paid by Intel .This case would show us that though being associated with the firm , the investors didnt get deter to complain against Dell. Problem Details: According to allegations, the payments from Intel were meant to ensure that Dell used only Intel Processors in its PCs according to suit. The investors claimed that Dells profits were inflated by hundreds of millions of dollars. Consequences: Regulators from the U.S. Securities and Exchange Commission (SEC) and the U.S. attorney for the Southern District of New York launched an investigation of Dells accounting practices due to which Dell had failed to file its quarterly earnings numbers for the periods ending Aug. 4, 2006 and Nov. 3, 2006, leading the Nasdaq stock exchange to take the decision of dropping Dell from its listing board for some period of time. Yudhisthira: Eldest son of Pandu, former king of Hastinapur. He is considered to be the best judge of right and wrong things. On the basis of his such a great knowledge he was awarded the title of dharmraj(King of right doings). But in Mahabharata we see even yudhishthira was caught in the web of ethical dilemma. Why such a dilemma happened This situation happened when Yudhishthira was invited by his younger brother Duryodhana for dhyut krida, a game of gambling. Those days the art of gambling used to make or break a kings reputation. Any person refusing to be a part of this game was considered either a coward or penniless. Yudhishthira as a king was well aware of the risk associated with the game yet he went beyond his limits by betting on his wife and ultimately losing to Duryodhan. Even though in the midst of the game, he had a clue of his losing out badly yet to prove he was strong enough to take the game further, he not only insulted his wife but tarred his own image. Consequences of Decision As a consequence of giving priority to his impression on society over what he believed to be morally and ethically correct, it led to the decline of the fame of Yudhishthira. He lost his fame and respect in the eyes of the people who considered him to be a real distinguisher of right and wrong. This game of gambling is a blemish on the character of Yudhishthira till date. Conclusion By analyzing the character of Yudhishthira, his act, reasons for act consequences of act we can conclude that decisions by people must be based on what is ethically correct rather than acting to inflate ones ego. An analogy with Corporate real life case Samsung paid $ 90 m in DRAM case Problem: Samsung paid $90m to bring to an end lawsuits brought against it by 41 US states as a result of its role in a worldwide DRAM price-fixing cartel. This would show us how in a bid to control the market (similar to Yudhishthiras claim to pride though he knew that he was committing mistake ), Samsung fell in the trap. Problem Details: Samsung, Elpida, Hynix and Infineon were all found guilty by the US Department of Justice of conspiring to set memory prices between July 1999 and June 2002 Consequences: In May 2006, Samsung, Hynix and Infineon agreed to pay $160m to settle a class-action brought against them by individuals who claimed they were financially harmed by the alleged conspiracy. Vibhishan : Vibhishan was the brother of Ravana. He was aware of the reality of Rama his real powers. For this reason he suggested Ravana to know the reality of Rama and move towards him making shri Rama his friend instead of making him his enemy. The dilemma faced by vibhishana is mentioned on following basis : Basis of existence of Dilemma : Vibhishan knew that Ramas power stood superior to that of his own brother (Ravana).He tried persuading Ravana to follow the path of goodness and extend a friendship relation to Rama. But when all his efforts went in vain, he was in a dilemma of whether to stay with his brother country at the time of war or should he stand in support of Rama, a person who he considered right. Hence here we see Vibhishana getting trapped between being a good obedient brother or being an enemy of his own brothers and country. Consequences of decision taken: He was insulted by his brother in front of society and ordered to leave his kingdom. This all happened after all the efforts taken by Vibhishana to pacify his brothers and Ramas relations. Later he decided to follow the path which he believed to be morally correct and a path towards achieving Moksha. He went to Rama and became his friend and a very important advisor against battle with Ravana. At the end after winning the battle Rama offers the kingdom of Ravana to Vibhishana as gift of his friendship and his gratitude towards his help and support in the war. Conclusion : Here again we see an ethical dilemma faced by a character between his loyalty towards personal relations and an ethical path. But here if we see in detail about the conditions, actions taken and consequences faced by the character, we can conclude that at the end Vibhishana took the right decision of joining with Rama. As we can see that by joining with Rama Vibhishana ensures that the effects of battle should be minimal on the citizens of his own country Lanka. With deeper thought we realize that his decision was out of his true love and respect for his country for he knew that by joining Rama, undesired damages of his kingdom can be avoided. Hence by observing this situation of Vibhishana we can also say that what actually looked to be a person who shifted to the enemy camp in the time of war and who was considered as a traitor by his own citizens was actually the real person concerned about the safety of his country. Here is a very good example by which we can explain that followi ng ethical decisions may seem to be against some of the known and dear ones in the short run but finally it is the ethically and morally correct decisions which are really good for the betterment of the organizations. This example of ethical decision resulting in loss for an organization in the short run but finally coming out as the most beneficial decisions ever taken in history for the organization in long term can be seen very well from the ethical decision taken by Johnson Johnson while calling back all its medicines which were considered fatal for the health of people consuming these medicines. As a result of this decision organization faced a huge short run financial loss even it looked that company may go for bankruptcy but now finally it is seen by everybody that Johnson Johnson is the top organization in its field and has a very good brand value and is perceived as one of the best ethically driven organizations. An analogy with Corporate real life case SEC fined TREND Micro CEO Problem: The allegation of suspicious trading of shares by Chen, chief executive and co founder of leading anti- virus firm Trend Micro on the major Chinese Internet Portal Sina.com. She was found to be in partner with the wrong dealings by his own husband too. This example would show us that one shouldnt keep silent over his/her close ones misdeeds. Problem Details: Apart from allegations of insider trading, there was also an inquiry into whether Ms Chen under reported her holdings in Trend Micro chares. Consequences: the CEO of Trend Micro was ordered to pay a fine by US Financial watchdogs. Also the US Securities and Exchange Commission did its investigations following the allegations. The company suffered huge losses due to it. Conclusion from the Project Most prominent ethical dilemma from Epics : By the study of various characters from Mahabharata we have seen that there is prominent type of ethical dilemma which exists across large number of characters. This prominent type of dilemma is the dilemma of loyalty versus moral values. Here by loyalty we mean that loyalty of a person can be towards anything. This loyalty in case of Bhishma was towards his own pledge of protecting his king. In case of Karna this loyalty is towards Duryodhana. Here the reason of loyalty is again different. While in case of Bhishma the reason of loyalty is his pledge in case of Karna reason of loyalty is his being indebted to Duryodhan because of the benefits given by Duryodhan to him. Similarly for Yudhishthira the inclination was towards popularly accepted beliefs rather than his own inner voice telling him not to go ahead with the game. In Ramayana, Vibhishan on the other hand was an example to show that ethically taken decisions stand much superior to ones worldly relations. Existence of similar dilemma in present scenario : The ethical dilemma faced by the large number of characters in Mahabharta can be seen in present scenario as well. This dilemma of loyalty versus personal moral values of an individual can also be seen in case of Enron failure. Here also as already explained above, employees found it their duty to remain loyal to the organization or top management by not concealing the degrading condition of organization to outside public. Conclusion : From all the above mentioned examples we can conclude that following ethically and morally correct decisions are the ones which an organization or an individual should always go with though they may be hard to follow. This is because these decisions may look difficult and harmful when viewed in short term perspectives but these are truly the decisions which are going to be beneficial in long run. All successful individuals and organizations are those which have a respected and trustworthy image in the minds of the public and stakeholders it has. This kind of image of individuals and organizations is never built in a day or so but is an effect of continuous dealings of ethical or moral values. According to Universalist theory of Business Ethics too, the interest of the larger mass prevails over individual interests It rightly says that the best moral choices are those that you want others to do , even when you cannot make yourself an exception , and ,that respect others as persons.
Saturday, January 18, 2020
Managing Working Capital
MANAGING WORKING CAPITAL Cash Budgets and Current Assets Learning Objectives Upon reading this chapter, students should: †¢Ã‚       Be able to compare and contrast working and fixed capital †¢Ã‚       Understand the impact of the operating cycle on the size of investment in accounts receivable and inventories †¢Ã‚       Know the differences between the three motives †¢Ã‚       Be able to differentiate between float, collection float, and disbursement float †¢Ã‚       Know how to appraise a firm’s credit worthiness †¢Ã‚       Be able to appraise the effectiveness of a firm’s inventory management policiesChapter Summary A firm can invest in both working capital and fixed capital. Working capital is a firm’s current assets and includes cash, marketable securities, inventory, and accounts receivable. Fixed capital is a firm’s fixed assets and includes plant, equipment and property. Firms that cannot obtain short-term financing become candidates for bankruptcy. Management of working capital is particularly important to the entrepreneurial or venture firm because there is such a pull on resources.Two important concepts in managing working capital are the operating cycle and the cash conversion cycle: †¢Ã‚       The operating cycle measures the time between receiving raw materials and collecting the cash from credit sales posted to accounts receivable †¢Ã‚       The cash conversion cycle measures the time it takes to collect money from the company’s customers and use those funds to pay its suppliers Calculating three ratios will reveal the average length of these cycles: 1. Inventory days            = 365 / (Cost of goods sold / Inventories) 2.Accounts receivable period (average collection period ) = Accounts receivable / (Net sales / 365) 3. Average payment period = Accounts payable / (Cost of goods sold / 365) The operating cycle is the inventory conversion period plus the average collection period. The cash conversion cycle is the operating cycle minus the average payment period. In order to determine average investment in accounts receivable, multiply net sales per day by the average collection period. With this number, a manager can now estimate what the investment in accounts receivable will be fore ht following year given sales increases and average collection period.In order to determine investment required in inventories, multiply average cost of goods sold per day by inventory conversion period. The required amount of accounts payable can be found by multiplying the cost of goods sold per day by average payment period. Armed with these numbers, a manager can tweak the business practices and use these numbers as metrics for improvement. If savings can be wrung out of the operating cycle and conversion cycle, this means less money will have to be raised in financing. A cash budget details the cash inflows and outflows of a firm over a specific time frame.Small firms may prepare annual or monthly cash budgets while larger firms will forecast cash flows weekly or daily. Most firms have a minimum desired cash balance that depends on the firm’s ability to acquire financing on short notice, management preferences, and the predictability of cash inflows and outflows. Estimates of cash inflows are driven by two main factors: 1. Sales forecast (may exhibit seasonality) 2. Customer payment patterns Cash outflows will go to suppliers, payroll, taxes, operating expenses, and purchases of plant and equipment.In order to construct the cash budget, list all expected cash inflows and then all expected cash outflows for the particular period, generating a net cash flow amount. As a general rule of thumb, the average firm has 1/3 or more of i ts assets in the form of current assets (cash, accounts receivable and inventory). Seasonal production and forecasting can lead to idle plant capacity and laid-off workers during the off-season. Under a level production plan, the same amount of raw material is purchased and the same amount of finished product is manufactured every month.There are three types of motives for holding cash: 1. The transactions motives are demands for holding cash – cash is needed to conduct day-to-day operations 2. Precautionary motives are demands that may be caused by unpredictable events, such as delays in production or in the collection of receivables; marketable securities are held in such a contingency 3. Speculative motives are demands for funds to take advantage of unusual cash discounts for needed materials Cash and marketable securities include: †¢Ã‚       Cash itself †¢Ã‚       U. S. Treasury bills        Commercia l paper – short-term, unsecured notes of well-known business firms †¢Ã‚       Negotiable certificates of deposit – a receipt issued by a bank in exchange for a deposit of funds †¢Ã‚       Bankers’ acceptances – primarily used to finance exports and imports †¢Ã‚       Eurodollars – deposits placed in foreign banks that remain denominated in U. S. dollars There are several reasons why U. S. banks have entered the Eurodollar market through overseas branches: 1. To finance business activity abroad 2. To switch Eurodollars into other currencies 3. To lend to other Eurodollar banksIn general, managers try to speed up cash collections while slowing down the payment process. The float is the time between sending out payments and having them actually be charged to the bank account. The collection float is the time between when a payer sends payment and funds are credited to the payee ’s bank account. The disbursement float is the time between when a payer sends payment and when the funds are deducted from the payer’s bank account. Float has three components: 1. Delivery or transmission float – the delay in transferring the means of payment from the payer (customer) to the payee (provider of goods/services) 2.Processing float – once payment reaches the destination, it needs to be entered and processed 3. Clearing float – delay in transferring funds because of the banking system itself In order to speed up the process: †¢Ã‚       Preauthorized checks are regular (typically monthly) deductions by a vendor from a customer’s checking account. †¢Ã‚       Under the Check 21 law, enacted in 2004, payee banks can present electronic or digital images of checks to payer banks rather than having to physically deliver the paper checks for payment.In order to facilitate sales, firms of ten offer the customers credit for purchases; this process calls in credit analysis. The five Cs of credit analysis are: 1. Character – ethical quality of the applicant and the history of paying bills on time (credit checks) 2. Capacity – the ability to pay bills (liquidity ratios) 3. Capital – adequacy of owners’ equity relative to existing liabilities 4. Collateral – whether assets are available to provide security 5. Conditions – current economic climate and state of the business cycleCredit bureaus obtain credit information about business firms and individuals; two such organizations are Experian and Equifax. Dun & Bradstreet reports contain information assembled through many channels and is one of the best sources of information on privately-held companies; reports are typically divided into five sections: (1) rating and summary; (2) trade payments; (3) financial information; (4) operation and location; and (5) history. Trade credit is extended on purchases to a firm’s customers. Sometimes, customers are given a discount if they pay early.The financial manager must be careful not to impose onerous credit terms that will alienate customers and lower sales. With respect to global credit, the concern is forex. There are two ways to handle the issue: 1. Invoice customers in the firm’s home currency 2. Hedge the forex risk Inventory management: †¢Ã‚       The just-in-time (JIT) inventory control system is a system where there are enough materials in inventory to cover needs for a short time, but not more inventory than is needed for short-term needs.Vendor and manufacturer work together to reduce lead time, setup time, and production time so that inventory shows up â€Å"just in time† †¢Ã‚       JIT II further integrates the activity of vendor and purchaser, wherein the position of buyer’s purchasers or materials planners is eliminate d and replaced by a representative of the supplier †¢Ã‚       Tracking inventory also allows firms to reduce the inventory conversion period and the cash conversion cycle. RFID (radio frequency identification) tags send out a radio signal to electronic readers that allow companies to know the location of inventory at any timeInventory management can result in reduced cost of warehousing and handling inventory. Cost savings and smaller asset bases should lead to higher return on assets and increasing shareholder wealth. Technology is improving asset management by making information available with which managers make business decisions in a real-time setting. Technology may be the key to reducing procurement and supply chain costs. Portals are specialized and secure Web sites through which clients can access order and account information. Key TermsCapacity                                The ability to pay bills and often involves an examination of liquidity ratios. Capital                                   The adequacy of owners’ equity relative to existing liabilities as the underlying support for creditworthiness. Cash budget                          The cash inflows and cash outflows of a firm over a specific time frame. Cash conversion cycle          The time it takes to collect money from the company’s customers and use those funds to pay its suppliers.Character                              The ethical quality of the applicant and his/her willingness to pay bills on time and is best judged by reviewing the past credit hist ory for the company or person. Collateral                               Assets that secure credit. Collection float                      The time between when a payer sends payment and the            funds are credited to the payee’s bank account. Conditions                             The current economic climate and state of the business cycle.They are an important consideration in assessing whether the applicant can meet credit obligations. Credit bureaus                      Firms that obtain credit information about         business firms and individuals. Disbursement float               The time between when a payer sends payment and when the funds are deducted from the payer’s bank account. Fixed capital                          A firm’s fixed assets, which include plant, equipment, and property. Float                                       The time between sending out payments and having them actually be charged to the bank account.Level production plan           Schedule where the same amount of raw material is purchased and the same amount of finished product is manufactured every month. Operating cycle                     The time between receiving raw materials and collecting the cash from credit sales posted to accounts recei vables. Portals                                   Specialized and secure web sites through which clients can access order and account information. Pre-authorized checks          Regular (typically monthly) deductions by a vendor from a customer’s checking account.Precautionary motives          Demands for funds that may be caused by unpredictable events, such as delays in production or in the collection of receivables. Speculative motives              Demands for funds to take advantage of unusual cash discounts for needed materials. Trade credit                           Credit that is extended on purchases to a firm’s customers. Transactions motives            Demands for holding cash is that cash is needed to conduct day-to-day operations.Working capital                     A firm’s current assets as shown on the balance sheet and includes cash in the bank accounts, marketable securities, inventory, and accounts receivable. Suggestions for Additional Resources 1. http://en. wikipedia. org/wiki/Just_In_Time_%28business%29 2. http://www. lean. org/ 3. http://www. equifax. com/ 4. http://www. experian. com/ 5. http://www. investopedia. com/terms/c/creditbureau. asp 6. http://en. wikipedia. org/wiki/Credit_bureau 7. http://www. investopedia. com/terms/w/workingcapital. asp 8. http://en. wikipedia. org/wiki/Working_capitalAnswers to Summary Questions 2. Fixed capital would be defined as the firm’s fixed assets, which include plant, equipment and property. True or false? True. . 3. The operating cycle measures the time it takes between o rdering materials and collecting cash from receivables. True or false? True. . 4. If a firm has $50,000 in profit and pays out about one half to the owners of the company, the amount of profit retained in the firm would show up as: (a) an increase in owners’ equity (b) a decrease in owners’ equity (c) a decrease in retained earnings (d) a decrease in long-term debt . 5.The accounts payable period is the time between a firm’s paying its suppliers for inventory and collecting cash from inventories. True or false? False. . 6. Increases in the cash conversion cycle will lower the firm’s short-term financing needs. True or false? False. . 7. The inventory conversion period is calculated by inventory divided by costs of goods sold. True or false? False. . 8. Activities that decrease the cash conversion cycle will increase the firm’s need to obtain financing. True or false? False. . 9. More efficient management of working capital a ssets will lessen the firm’s needs for financing.True or false? True. . 10. A cash budget is a tool the treasurer uses to forecast future cash flows and estimate future short-term borrowing needs. True or false? True. . 11. To construct a cash budget, two sets of information are needed: estimated cash inflows and estimated cash outflows. True or false? True. . 12. The estimated cash inflows are affected by the sales forecast and customer payment patterns. True or false? True. . 13. Assume a firm’s production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold.If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the short-term operating cycle be? (a) 110 days (b) 130 days (c) 190 days (d) 270 days . 14. If a firm has net sales of $400,000, annual cost of goods sold of $315,000, an inventory turnover of 4. 5 times a year, and an accounts re ceivable turnover of five times a year, the combined investment in inventories and accounts receivable would be: (a) $64,500 (b) $92,000 (c) $122,500 (d) $150,000 . 15. Calculation of a firm’s average collection period is the same as calculating the: (a) accounts receivable cycle (b) inventory cycle c) accounts payable cycle (d) short-term operating cycle . 17. A level production plan has problems, such as idle plant and laid-off workers during slow sales months and production bottlenecks during busy times. True or false? False. . 18. The account receivable period may be calculated as accounts receivable divided by sales. True or false? False. . 19. The account receivable period may be calculated as accounts receivable divided by daily sales. True or false? True. . 20. The transactions motive is the demand for holding cash. True or false? True. . 22. The federal funds rate is normally several points lower than the Treasury Bill rate.True or false? False. . 23. The five C†™s of credit analysis is a popular concept used by inventory managers. True or false? False. . 24. A mercantile credit bureau serves primarily as a (n): (a) collection agency for delinquent accounts (b) common meeting place where credit managers may exchange information (c) organization through which accounts receivable may be sold to other businesses (d) central record-keeping organization for credit information on business firms . 25. The objective of just-in-time (JIT) inventory control is to carry a minimum level of inventories.True or false? True. . 26. The delivery or transmission float is the delay in transferring the means of payment from the payer (customer) to the payee (the provider of goods or services). True or false? True. . 27. The disbursement float is the delay in transferring the means of payment from the payer (customer) to the payee (the provider of goods or services). True or false? False. Answers to â€Å"Review Questions†. 1. What is meant by wor king capital? Net working capital is defined as current assets minus current liabilities. . 2. Briefly describe a manufacturing firm’s operating cycle.The operating cycle measures the time between receiving materials and collecting cash from receivables. Raw materials are purchased and products are manufactured from them to become finished goods. Effort then is made to sell the finished goods. If the goods are sold on credit, then the receivables must be collected. . 3. Explain how the cash conversion cycle differs from the operating cycle. The cash conversion cycle typically is shorter than the operating cycle. The cash conversion cycle measures the time between when a firm pays for its supplies or raw materials and when it collects cash from receivables.  4. Describe how the length of the cash conversion cycle is determined. It is equal to the operating cycle (inventory period minus the accounts receivable period) minus the payables period. . 5. Explain how the length of the operating cycle affects the amount of funds invested in accounts receivable and inventories. All else being equal, a longer (shorter) inventory period and receivables period will increase (decrease) the amount of inventory and accounts receivable carried by the firm. . 6. What affects the amount of financing provided by accounts payable as viewed in terms of the cash conversion cycle?The level of the firm’s cost of goods sold and the average payment period affect the amount of financing provided by accounts payable. . 7. What is a cash budget? How does the treasurer use forecasts of cash surpluses and cash deficits? A cash budget lists, period by period, expected cash inflows and outflows. The treasurer can plan ahead to find suitable marketable securities in which to invest excess cash. If cash deficits are forecast, the treasurer can arrange for short-term financing sources. . 8. Three sets of information are needed to construct a cash budget.E xplain what they are. The firm’s minimum desired cash balance, forecasted cash inflows, and forecasted cash outflows are needed to construct a cash budget. . 9. Why might firms want to maintain minimum desired cash balances? Firms want to maintain minimum desired cash balance to ensure they can pay bills on time (transactions motive) and to have a cushion, as forecasts of cash flows may differ from actual future cash flows. . 10. What are the sources of cash inflows to a firm over any time frame? The main sources of cash inflows are cash sales and customer payments on credit sales. . 11.What are the sources of cash outflows from a firm over any time frame? The main sources of cash outflows are payments for raw materials, labor and overhead expenses, rent/lease payments, plant and equipment purchases, interest and principal payments, dividend payments, and taxes. . 12. How does the choice of level or seasonal production affect a firm’s cash over the course of a year ? Under level production, inventory becomes large before the peak selling season; whatever cash the firm has will probably be borrowed funds as cash is used to pay workers and suppliers over the course of the year as inventories are building.Under seasonal production, there is still a build-up of inventories prior to the selling season but probably less than under level production, as inventory can be sold shortly after it is made. Cash is conserved for much of the year; materials and labor expenses are less during the off-peak times when production is low. . 13. Describe what happens to a firm’s current asset accounts if the firm has seasonal sales and they use (a) level production; (b) seasonal production. a. Under a level production plan, the same amount of raw materials are purchased and the same amount of finished product is manufactured every month.Inventory builds up in anticipation of higher seasonal sales while cash and accounts receivable are quite low. When the sel ling season begins, inventories fall and receivables rise. After a time, inventories are nearly exhausted, and the firm is collecting cash from its customers. The changing composition of current assets for a firm with a seasonal sales pattern is illustrated in Figure 15. 4. b. Under seasonal production, raw material purchases will rise or fall in anticipation of higher or lower sales.Such a strategy can help minimize the effect of seasonal sales on inventory; goods are manufactured shortly before sale. Receivables will rise during the peak selling season but will fall thereafter as cash is collected. . 14. Describe the three motives or reasons for holding cash. a. need for day-to-day bill-paying? Transactions motive: b. hold funds to meet unexpected needsâ€â€a safety level of? Precautionary motive: cash hold funds? c. Speculative motive: to take advantage of attractive input prices or discounts 15. What characteristics should an investment have to qualify as an acceptable market able security?Marketable securities must be highly liquid (easily converted into cash at a price close to fair market value) with little chance of price risk or default risk. . 16. Identify and briefly describe several financial instruments used as marketable securities. Marketable securities that can be used as a means to â€Å"park†the firm’s excess cash include a. short-term securities issued and backed by the U. S.? U. S. Treasury Bills: government b. a bank’s temporary excess reserves that are lent to other banks? Federal Funds: on a day-to-day basis c. short-term unsecured notes of large financially stable? Commercial Paper: firms . large dollar CDs ($100,000 or more) for? Negotiable Certificates of Deposit: which a secondary market has evolved e. business paper used to finance international trade, backed? Bankers’ Acceptances: (accepted) by a bank with a high quality rating f. deposits placed in foreign banks that remain denominated in U. S.? Euro dollars: dollars (so there is no currency risk) . 17. What is float? Why is it important to cash management? Float is the delay between when funds are sent by a payer to a payee. Collection float is the time between when a payer sends payment and the funds are credited to the payee’s bank account.Disbursement float is the time lag between when a payer sends payment and when the funds are deducted from the payer’s bank account. It is important to cash management as the firm will have larger cash balances to invest and to reduce its own financing needs, all else being equal, the shorter the collection float and the larger the disbursement float. . 18. What are the three components of float? Which are under the control of the firm seeking to reduce collection float? The three components of float are delivery (or transmission) float, processing float, and clearing float.Delivery float and processing float are most directly under the control of the firm. Clearing float is c ontrolled mainly by the banking system’s check-clearing process but the firm can try to reduce it (and delivery float) by using lockboxes that are geographically closer to customers then the firm’s main office. . 19. What are some strategies a firm can use to speed up its collections by reducing float? Using a lockbox, incoming receipts are placed in a Post Office box which can be emptied several times a day by bank personnel, who process the payments and deposit the incoming funds into the firm’s accounts.This reduces mail delivery delay and processing delay, as the bank processes the payments rather than the firm. A second popular method, best used for regular payments such as utility, cable bills, or insurance premiums, is the use of preauthorized checks that allow the firm to deduct funds from the payer’s bank account. . 20 How can processing float be reduced? Vendors reduce processing float by improving the process of receiving payments and depositin g them. Large incoming payments (say, over $1 million) are automatically flagged and deposited expeditiously.Electronic check images and electronic payments (rather than the use of paper checks) remove the human component and thus can reduce processing delays. Lockboxes and preauthorized checks reduce processing delays, as processing is handled by banks, speeding deposit of incoming receipts. .. 21. How can a firm use float to slow down its disbursements? A firm can increase mail float by mailing payments from out-of-the-way locations, but that may hurt its reputation with suppliers who can direct the firm to send payments to another, closer, lockbox location.Another means are to use disbursement banks that are located around the country to increase disbursement float via the check-clearing process. So excess (and noninterest bearing) funds are not kept in a disbursement account, a firm can arrange to use a zero balance account for its disbursements. A bank will transfer sufficient funds every day into the ZBA to cover the day’s presented checks; other funds can remain invested in marketable securities. . 22. Why can’t a firm that wants to increase disbursement float simply make payments after the stated due date?There is an ethical issue with paying invoices late. If a vendor has provided needed goods and services the customer should pay for them in a timely and appropriate manner. Paying late can lead to negative notations on credit reports. Credit availability to late payers can be discontinued if the vendor’s credit standards are tightened. . 23. What is credit analysis? Identify the five C’s of credit analysis. Credit analysis involves appraising the creditworthiness or quality of a potential credit customer. Credit analysis includes examining the 5 C’s of credit. a. illingness to repay debts? Character: b. ability to repay debts (liquidity)? Capacity: c. equity cushion? Capital: d. what assets can provide security for t he credit? Collateral: e. the state of the business cycle and its expected movement during the? Conditions: credit period . 24. Describe various credit-reporting agencies that provide information on business credit applicants. Credit bureaus provide firms with information about a firm’s financial condition and its record on paying its past debts. Local credit bureaus service community credit information needs.The National Credit Interchange System facilitates exchange of information between bureaus. The National Association of Credit Management established the Foreign Credit Interchange Bureau to service firms with overseas customers. Dun & Bradstreet is perhaps the best-known private firm supplying credit information. . 25. How can a firm control the risk of changing exchange rates when billing an overseas customer? First, a firm can invoice the overseas customer in the firm’s home currency; this transfers the risk of changing exchange rates to the customer.Second, if the customer may pay in their own currency, the supplier can use currency futures or options contracts to hedge or reduce the risk of changing exchange rates. . 26. What risks arise when a firm lowers its credit standards to try to increase sales volume? Marginal and poor-risk customers may purchase the firm’s goods/services on credit. If they are unable to make payment, the firm must revise its sales figures and faces the added expense of trying to recover the goods and whatever funds it can from the delinquent customer. . 27. How do credit terms and collection efforts affect the investment in accounts receivable?All else being equal, lax credit terms increase the investment in accounts receivable and increase the chance for larger bad debts. Stricter credit terms will likely reduce receivables balances, but at the cost of possibly losing sales to competitors with easier standards. Collection efforts are aimed at having customers with overdue accounts pay their bills. Thus, successful collection efforts can reduce receivable balances and bad debt expense. On the other hand, collection efforts that offend customers can lead to lost future business. 28. How is the financial manager involved in the management of inventories? Inventory management concerns the financial manager because inventory, like all other assets, must be financed. Overly large inventories use warehouse space and have larger financing costs and insurance costs. Smaller inventories run the risk of selling out and causing customer dissatisfaction. Answers to â€Å"Applying this Chapter†Questions 2. The Robinson Company has the following current assets and current liabilities for these two years: 2004            2005 Cash and marketable securities |$50,000 |$50,000 | |Accounts receivable |300,000 |350,000 | |Inventories |350,000 |500,000 | |Total current assets |$700,000 |$900,000 | |Accounts payable |$200,000 |$250,000 | |Bank loan |0 |150,000 | |Accruals |150,000 |200,000 | |Total current liabilities |$350,000 |$600,000 | | | | | If sales in 2004 were $1. 2 million and sales in 2005 were $1. 3 million, and cost of goods sold was 70 percent of sales, how long were Robinson’s operating cycles and cash conversion cycles in each of these years? What caused them to change during this time?AR period = $350,000/($1,300,000/365) = 98. 27 days (2005)                  = $300,000/($1,200,000/365) = 91. 25 days (2004) Inventory period           = $500,000/($910,000/365) = 200. 55 days (2005)                            = $350,000/($840,000/365) = 152. 08 days (2004) AP period = $250,000/($910,000/365 ) = 100. 27 days (2005)                  = $200,000/($840,000/365) = 86. 90 days (2004) Operating cycle = AR period + Inventory period = 98. 27 + 200. 55 = 298. 82 days (2005)                           = 91. 25 + 152. 08 = 243. 33 days (2004) Cash conversion cycle = Operating cycle – AP period = 298. 82 – 100. 27 = 198. 5 days (2005)                                      = 243. 33 – 86. 90 = 156. 43 days (2004) Both the OC and CCC rose in 2005, primarily because of a large rise (almost 48 days) in the inventory period. 5. The Robinson Company from Problem 2 had net sales of $1,200,000 in 2004 and $1,300,000 in 2005. (a)      Determine the receivables turnover in each year. AR turnover      = Sales/AR = $1,300,000/$350,000 = 3. 71 (2005)                            = $1,200,000/$300,000 = 4. 00 (2004) (b)      Calculate the average collection period for each year. Average collection period       = AR/(Sales/365)                                                  = $350,000/($1,300,000/365) = 98. 7 days (2005)                                                  = $300,000/($1,200,000/365) = 91. 25 days (2004) (c)      Based on the receivables turnover for 2004, estimate the investment in receivables if net sales were $1,300,000 in 2005. How much of a change in the 2005 receivables occurred? Receivables investment     = Sales per day ? Average collection period Â Â à ‚                                           = ($1,300,000/365) ? 91. 25 days = $325,000 6. Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2004 and $1,200,000 in 2005. (a)      Calculate the inventory turnover for each year. Comment on your findings.Inventory turnover      = COGS/Inventory = $1,200,000/$500,000 = 2. 40 (2005)                                      = $1,000,000/$350,000 = 2. 86 (2004) Inventory turnover fell in 2005; inventory rose more quickly than cost of goods sold. (b)      What would have been the amount of inventories in 2005 if the 2004 turnover ratio had been maintained? Inventories investment     = COGS per day ? Inventory period                                            = $1,200,000/365 ? (365/2. 86) = $419,580. 42 7. Given Robinson’s 2004 and 2005 financial information presented in problems 2 and 4,     (a)      Compute its operating and cash conversion cycle in each year. Robinson Company | | | | | | |2004 | |2005 | | |Sales |$1,200,000 | |$1,300,000 | | |Cost of Goods sold |$1,000,000 | |$1,200,000 | | |profit margin |5. 0% | |5. 0% | | | | | | | | |Accounts Receivable |$300,000 | |$350,000 | | |Inventory |$350,000 | $500,000 | | |Accounts Payable |$200,000 | |$250,000 | | | | | | | | |Sales/ day = |$3,287. 67 | |$3,561. 64 |= $1,300,000/365 | |COGS/day= |$2,739. 73 | |$3,287. 67 |= $1,200,000/366 | | | | |à ‚ | | |Inventory conversion period = Inventory/COGS per day | | |127. 75 |days |152. 8 |days | | | | | | | |Average collection period = AR/sales per day | | | |91. 25 |days |98. 27 |days | | | | | | | |Average payment period = AP/COGS per day | | | |73. 0 |days |76. 4 |days | | | | | | | |Operating cycle = Inventory conversion + collection periods | | |219. 00 |days |250. 35 |days | | | | | | | |Cash cycle = Inventory conversion + collection period – payment period | | |146. 00 |days |174. 31 |days | (b)      What was Robinson’s net investment in working capital each year? |Net investment in working capital = AR + Inventory – AP (as used in his chapter) | | |2004 | |2005 | | | |=$300,000+$350,000-$200,000 |=$350,000+$500,000-$250,000 | | |=$450,000 | |=$600,000 | | 8. Robinson expects its 2006 sales and cost of goods sold to grow by 5 percent over their 2005 levels. (a)      What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2005 levels? What will be its net investment in working capital? If the ratios remain the same, a | | | |5 |percent increase in sales and COGS will increase AR, | |inventory, and AP proportionately in 2006 | | | |AR: $350,000 + 5%= |$367,500 | | | |Inv: $500,000 + 5%= |$525,000 | | | |AP: $250,000 + 5%= |$262,500 | | | |Net investment in working capital = AR + Inventory – AP | | |=$367,500 + $525,000 – $262,500 = |$630,000 | | | | | | | |The new sales will be |$1,300,000 + 5% = |$1,365,000 | | |Sales/day = | |$3,739. 3 | | |The new COGS will be |$1,200,000 + 5% = |$1,260,000 | | |COGS/day = | |$3,452. 05 | | (b)      What will b e the impact on its net investment in working capital in 2006 if Robinson is able to reduce its collection period by five days, its inventory period by six days, and increase its payment period by two days? |The new sales will be |$1,300,000 + 5% = |$1,365,000 | |Sales/day = | |$3,739. 3 | |The new COGS will be |$1,200,000 + 5% = |$1,260,000 | |COGS/day = | |$3,452. 05 | |Estimated AR if collection period reduced by |5 |days: | |New AR = sales/day x collection period | | | |Sales/ day = |$3,739. 73 | | | |Old collection period |98. 27 | | | |New collection period |93. 27 | | | |New AR estimate= |$348,801. 7 | | | | | | | | |Estimated inventory if conversion period reduced by |6 |days: | |New Inv = COGS/day x conversion period | | | |COGS/day |$3,452. 05 | | | |Old conversion period |152. 08 | | | |New conversion period |146. 08 | | | |New Inv estimate= |$504,287. 7 | | | | | | | | |Estimated AP if payment period increased by |2 |days: | |New AP = sales/day x payment period | | | |COGS/day |$3,452. 05 | | | |Old payment period |76. 04 | | | |New payment period |78. 04 | | | |New AP estimate= |$269,404. 1 | | | | | | | | |2006 working capital = AR + Inventory – AP | | | |=$360,020. 55 + $514,643. 84 – $259,047. 95 | | | |=$583,684. 93 | | | | |which is a reduction of |$46,315. 07 |from part a) | 9. Robinson expects its 2006 sales and cost of goods sold to grow by 20 percent over their 2005 levels. (a)      What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2005 levels? What will be its net investment in working capital? If the ratios remain the same, a | | | |20 percent increase in sales and COGS will increase AR, | |inventory, and AP proportionately in 2006 | | | |AR: $350,000 + 5%= |$420,000 | | | |Inv: $500,000 + 5%= |$600,000 | | | |AP: $250,000 + 5%= |$300,000 | | | |Net investment in working capital = AR + Inventory – AP | | |=$367,500 + $525,000 – $262,500 = |$720,000 | | | | | | | |The new sales will be |$1,300,000 + 20% = |$1,560,000 | | |Sales/day = | |$4,273. 97 | | |The new COGS will be |$1,200,000 + 20% = |$1,440,000 | | |COGS/day = | |$3,945. 21 | | b)      What will be the impact on its net investment in working capital in 2006 if Robinson is able to reduce its inventory period by ten days? |Estimated AR if collection period reduced by 0 days: | |New AR = sales/day x collection period | | | |Sales/ day = |$4,273. 97 | | | |Old collection period |98. 27 | | | |New collection period |98. 27 | | | |New AR estimate= |$420,000. 0 | | | | | | | | |Estimated inventory if conversion period reduced by 10 days: | |New Inv = COGS/day x conversion period | | | |COGS/day |$3,945. 21 | | | |Old conversion period |152. 08 | | | |New conversion period |142. 08 | | | |New Inv estimate= |$560,547. 5 | | | | | | | | |Estimated AP if payment period increased by 0 days: | |New AP = sales/day x payment period | | | |COGS/day |$3,945. 21 | | | |Old payment period |76. 04 | | | |New payment period |76. 04 | | | |New AP estimate= |$300,000. 0 | | | | | | | | |2006 working capital = AR + Inventory – AP | | | |=$360,020. 55 + $514,643. 84 – $259,047. 95 | | | |$680,547. 95 | | | | |which is a reduction of |$39,452. 05 |from part a) | | 10. Following are financial statements for the Genatron Manufacturing Corporation for the years 2004 and 2005: Selected Balance Sheet Information 2004            2005 Cash | $ 50,000 |$ 40,000 | |Accounts receivable |200,000 |260,000 | |Inventory |450,000 |500,000 | |Total current assets |$700,000 |$800,000 | |Bank loan, 10% |$ 90,000 |$ 90,000 | |Accounts payable |130,000 |170,000 | |Accruals |50,000 |70,000 | |Total current liabilities |$270,000 |$330,000 | |Long-term debt, 12% |300,000 |400,000 | Selected Income Statement Information 2004            2005 |Net sales |$1,300,000 |$1,500,000 | |Cost of goods sold |780,000 |900,000 | |Gross profit |$ 520,000 |$ 600,000 | |Net income |$93,000 |$ 114,000 |Calculate Genatron’s operating cycle and cash conversion cycle for 2004 and 2005. Why did they change between these years? Inventory period           = Inventory/(COGS/365)                            = $500,000/($900,000/ 365) = 202. 78 days (2005)                            = $450,000/($780,000/365) = 210. 58 days (2004) AR period = AR/(Sales/365) = $260,000/($1,500,000/365) = 63. 27 days (2005)                  = $200,000/($1,300,000/365) = 56. 15 days (2004) AP period = AP/(COGS/365) = $170,000/($900,000/365) = 68. 94 days (2005)                  = $130,000/($780,000/365) = 60. 83 days (2004) Operating cycle = Inventory period + AR period 202. 78 days + 63. 27 days = 266. 05 days (2005)                            = 210. 58 days + 56. 15 days = 266. 73 days (2004) Cash conversion cycle = Operating cycle – Average payment period                                      = 266. 05 days – 68. 94 days = 197. 11 days (2005)                                      = 266. 73 days – 60. 83 days = 205. 90 days (2004) The operating cycle remained constant in 2004 and 2005 as a reduction in the inventory period was balanced by an increase in the average collection period. The cash conversion cycle sell for 2005 was longer. Genatron took, on average, longer to pay its suppliers. 11.Genatron Manufacturing expects its sales to increase by 10 percent in 2006. Estimate the firm’s investment in accounts receivable, inventory, and accounts payable in 2006. If the inventory, collection, and payment periods remain constant, each account should rise by 10 percent. $260,000 (1. 10) =? Accounts receivable: $286,000 $500,000 (1. 10) = $550,000? Inventory: $170,000 (1. 10) = $187,000? Accou nts payable: 12 . With concerns of increased competition, Genatron is planning in case its 2006 sales fall by 5 percent from their 2005 levels. If cost of goods sold and the current asset and liability accounts decrease proportionately, (a) Calculate the 2006 cash conversion cycle.  | | | | |5% decline | | |2004 | |2005 | |2006 | |Sales |$1,300,000 | |$1,500,000 | |$1,425,000 | |Cost of Goods sold |$780,000 | |$900,000 | |$855,000 | |profit margin |7. 2% | |7. 6% | | | |Net income |$93,000 | |$114,000 | | | |Accounts Receivable |$200,000 | |$260,000 | |$247,000 | Inventory |$450,000 | |$500,000 | |$475,000 | |Accounts Payable |$130,000 | |$170,000 | |$161,500 | | | | | | | | |Sales/ day = |$3,561. 64 | |$4,109. 59 |= $1,500,000/365 |$3,904. 11 | |COGS/day= |$2,136. 99 | |$2,465. 75 |= $900,000/366 |$2,342. 47 | | | | | | | | |Inv entory conversion period = Inventory/COGS per day | | | |210. 58 |days |202. 78 | |202. 8 | | | | | | | | |Average collection period = AR/sales per day | | | |56. 15 |days |63. 27 | |63. 27 | | | | | | | | |Average payment period = AP/COGS per day | | | |60. 8 |days |68. 94 | |68. 4 | | | | | | | | |Operating cycle = Inventory conversion + collection periods | | | |266. 73 |days |266. 04 | |266. 04 | | | | | | | | |Cash cycle = Inventory conversion + collection period – payment period | | | |205. 90 |days |197. 10 | |197. 10 | (b) Calculate the 2006 net investment in working capital. Net investment in working capital = AR + Inventory – AP (as used in this chapter) | |2004 |2005 |2006 | | | | | |=$247,000+$475,000-$161,500 | |$520,000 |$590,000 |=$560,500 | | | 13. .In problem 10 we assumed t he current asset and liability accounts decrease proportionately with Genatron’s sales. This is probably unrealistic following a decline in sales.What will be the impact on the working capital accounts if its collection period lengthens by five days, its inventory period lengthens by seven days, and its payment period lengthens by three days if Genatron’s sales and COGS fall 5 percent from their 2005 levels? |The new sales will be |$1,500,000 – 5% = |$1,425,000 | | | |Sales/day = |$3,904. 11 | | |The new COGS will be |$900,000 – 5% = |$855,000 | | | |COGS/day = |$2,342. 7 | | | | | | | |Estimated AR if collection period lengthens by |5 |days: | |New AR = sales/day x collection period | | | |Sales/ day = |$3,904. 11 | | | |Old collection period |63. 27 |(from problem 10) | | |New collection period |68. 27 | | | |New AR estimate= |$266,520. 5 | | | | | | | | |Estim ated inventory if conversion period lengthens by |7 |days: | |New Inv = COGS/day x conversion period | | | |COGS/day |$2,342. 47 | | | |Old conversion period |202. 78 | | | |New conversion period |209. 8 | | | |New Inv estimate= |$491,397. 26 | | | | | | | | |Estimated AP if payment period increased by |3 |day: | |New AP = sales/day x payment period | | | |COGS/day |$2,342. 47 | | | |Old payment period |68. 4 | | | |New payment period |71. 94 | | | |New AP estimate= |$168,527. 40 | | | | | | | | |2006 working capital = AR + Inventory – AP | | | |=$266,520. 55 + $491,397. 26 – $168,527. 40 | | | |=$589,390. 1 | | | | |which is an increase of |$28,890. 41 |from problem 10. | | 14. .Suppose Global Manufacturing is planning to change its credit policies next year. It anticipates that 10 percent of each month’s sales wil l be for cash; two thirds of each month’s receivables will be collected in the following month, and one-third will be collected two months following their sale. Assuming the Global’s sales forecast in Table 10. 5 remains the same and the expected cash outflows in Table 10. 6 remain the same, determine Global’s revised cash budget. Nov. Dec. Jan. Feb. Mar. Apr.Sales                            $80,000  $100,000    $ 30,000  $ 40,000    $ 50,000    $ 60,000       Cash (10%)                                                         3,000        4,000        5,000        6,000       1 Month Later (2/3)                                          60,000      18,000      24,000      30,000 [pic][pic][pic][pic]      2 Months Later (1/3)                                        24,000      30,000        9,000      12,000       Total Cash Receipts                                       $ 87,000  $ 52,000    $ 38,000    $ 48,000 [pic][pic][pic][pic]      Less: Total Cash Payments                             60,000    127,000      44,000      40,000       Net Cash Flow                                                 $ 27,000  $ –75,000    $ –6,000    $ 8,000 [pic][pic][pic][pic]      Beginning Cash Balance                                  25,000      52,000      25,000      25,000       Cumulative Cash BalanceÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â à ‚      $ 52,000  $ –23,000    $ 19,000    $ 33,000Monthly Loan                                                        (or repayment) 0      48,000        6,000      –8,000       Cumulative Loan Balance                                        0      48,000      54,000     46,000       Ending Cash Balance       Â
Friday, January 10, 2020
IKEA Global Sourcing Challenge Essay
Summary In this case, it is known that IKEA’s procurement model is the mode of global sourcing. IKEA products are shipped to the 26 distribution centres from the trade area after procurement, and then delivered to the shopping malls in the world. IKEA’s procurement philosophy and assessment of suppliers mainly include four aspects: continuous price improvement; strict supplier performance and service levels; good quality and healthy products; and environmental and social responsibility (IKEA Sustainability Report 2011). In the aspect of social responsibility, IKEA does not accept child labour, but also actively prevents the use of child labour when its supplier Indian Rugs is revealed to use child labour (Bartlett et al., 2006). All IKEA suppliers and subcontractors must comply with the special code of conduct on child labour â€Å"The IKEA Way on Preventing Child Labor†. The standard requires that all acts must be done to maximize the protection of the rights and interests of children (Motamed et al., 2010). The code of conduct and monitoring measures must be supplemented by the corresponding program to eliminate the root causes behind child labour. It is for these reasons, the IKEA Foundation actively supports UNICEF and Save the Children Relief Projects designed to protect the rights of children. Key issues resulted in problems and analysis In this case, the key cultural management issue is the corporate social responsibility. IKEA, the world’s largest furniture company has a fairly commendable corporate culture, and an important element of its containing: IWAY. In terms of IWAY, there are strict rules on the procurement of products, materials and services, particularly intolerance of IKEA’s suppliers using child labour or forced labour (Maon et al., 2007). Another prominent feature of it is committed to preventing corruption, fraud and illegal activities, and developing the â€Å"anti-corruption rules†. The business management researchers can analyse the business grow and even decline and fall from all angles. IKEA fortune in essence is supported by its corporate values. Otherwise, it cannot carry over in numerous fluctuations of economic cycles. A sustainable development of enterprise is largely determined by the corporate culture. The quality of enterprise could also affect competitiveness. This is not an ideal question for entrepreneur, more than a philosophical question, but a question of competition in the market. In fact, almost all first-class entrepreneurs in the business process carry out first-class corporate culture operations. They use the values, philosophy to show a unique quality in business. And this kind of internal but critical competitiveness is the riche class and managers lack of. In the production process, the trade office staffs will keep in contact with the IKEA suppliers, they can take an advantage by this opportunity to observe social and working conditions of suppliers and make efforts to prevent the use of child labour (IKEA Group, 2003). IKEA in the supplier organization encourages workers and subcontractors to discuss the problems they encounter every day. This approach strengthens IKEA’s understanding of the causes of child labour. If IKEA finds child labour, it will require suppliers to take action based on the child’s best interests. The supplier must implement corrective and preventive action plans, including education and training aspects. IKEA will visit the children’s school, and carry out a surprised visit to suppliers. If the supplier does not take action on the scheduled date, or later there’s occurrence of the violations, IKEA will terminate all business relationships with the suppliers. It can be seen that IKEA’s motivation emphasis on corporate social responsibility is closely related to commercial activities. Its primary motivation includes the legitimacy of the business, brand reputation, reduction in business risks, total quality management and marketing environmental analysis, especially the legitimacy of the business and reduction in business risks are becoming increasingly important. In addition, the communication of corporate social responsibility is crucial. It can maintain the attractiveness of IKEA for a new generation of partners. IKEA hopes that the partners in dealing with corporate social responsibility can show independence, but the ability to realize this issue will have to depend on the employees’ management level (Maon and Swaen, 2006). Through this initiative, colleagues at all levels can increase the awareness of corporate social responsibility, so as to achieve the purpose of incentives. Key learning Corporate social responsibility is developed since the 1990s, which is a turning point of corporate social responsibility. IKEA is also in accordance with some of the pressure in this community to adjust its operating way on the requirements of the enterprise. IKEA’s business is constructed in the price and quality environment and work environment (Maon et al., 2007). With regard to a supply and demand model of corporate social responsibility (CSR), it’s assumed that a firm’s size, level of diversification, research and development (R&D), advertising, government sales, consumer income, labour market conditions, and stage in the industry life cycle could estimate the firm’s standard of CSR (McWilliams and Siegel, 2001). IKEA as a large multinational Corporation with 26 distribution centres and emphasis on R&D and advertising hopes to establish long-term cooperative relationship with suppliers; looks for more partners who recognize the IKEA culture as the co mmon value; and aim at its development (Maon and Swaen, 2006). Respect for fundamental human rights and fair treatment of labour are the basic requirements for its suppliers. Therefore, child labour is absolutely not allowed. And the cooperation should be based on frankness and respect and it should be put into a gradual and long-term procedure. Under continuous pressure on price and sub-contractors from developing countries, IKEA is positive to face with the accusation of using child labour. It’s shown that how stakeholders can affect the improvement of CSR policies by showing their societal expectations, by publicly criticizing corporate behaviours considered as irresponsible or by building in a collaborative and constructive relationship with the company. This case study focuses on the CSR practices and communication by a complexity of the corporate decisions and it also reflects the public attitudes have played a key role in enhancing a company’s CSR construction (Maon and Swaen, 2006). References Bartlett, C. A., Dessain, V. & Sjoman, A., 2006, ‘IKEA’s Global Sourcing Challenge Indian Rugs and Child Labor’, Harvard Business School, 9-906-414. IKEA Group, 2003, ‘IKEA: Social and environmental responsibility report’, viewed 1 May2012, . IKEA Group, September 1, 2010 – August 31, 2011, ‘IKEA Sustainability Report 2011’, IKEA, viewed 1 May2012, . Maon, F., Swaen, V. and Lindgreen, A. 2007, ‘Corporate Social Responsibility at IKEA: commitment and communication’, Research Memorandum, F Maon, V Swaen, A Lindgreen. Maon, F. & Swaen, V. 2006, ‘Integration and communication of CSR principles by IKEA: an analysis of the influence of and on external stakeholders’, LGA Working Paper, Louvain School of Management. McWilliams, A. & Siegel, D. 2001, ‘Corporate social responsibility: A theory of the firm perspective’, Academy of Management Review, 26(1), p.117-127, viewed 1 May2012, . Motamed, M., Ozhusrev, N. & Pena, G. 2010, ‘IKEA and the Child Labor Challenge’, BAHR 509 – Group Project Paper.
Thursday, January 2, 2020
Nathaniel Hawthorne s The Scarlet Letter - 1631 Words
Nathaniel Hawthorne’s personal isolation originated in his early childhood and later developed the theme for his most renowned literary novel, The Scarlet Letter. In The Scarlet Letter, Nathaniel Hawthorne emphasized the impact that societal isolation can have on individuals. Several of the victims inflicted with isolation throughout the novel were ultimately met with their inevitable downfalls. One particular character, Hester Prynne, was selected to undergo a struggle comparable to Hawthorne’s own. Hawthorne’s The Scarlet Letter centered its characters on a theme of both physical and psychological isolation. In order to entirely comprehend the theme Hawthorne depicts in The Scarlet Letter, one must delve into his upbringing. His theme of isolation was developed throughout his early adolescence leading into the beginning of his adulthood. When Hawthorne was merely four years of age, his father had died unexpectedly (Whitney). This death marked the beginning of Hawthorne’s fear of abandonment and ultimately led to his renowned theme of isolation. Following his father’s death, Nathaniel Hawthorne was looked after by his mother and his uncle (Whitney). A strong emotional connection arose between Hawthorne and his mother, but he was often denied her presence. Hawthorne felt as though â€Å"he was being managed, played upon, and manipulated by the uncle who seemed so often to step between himself and his mother.†(Johnson 26). On July 31, 1849, Nathaniel Hawthorne’s mother passedShow MoreRelatedNathaniel Hawthorne s The Scarlet Letter1187 Words  | 5 PagesPurit anism in Red Nathaniel Hawthorne’s The Scarlet Letter shows the early view of Puritanism by concentrating on sin, guilt, and its effects on society. Nathaniel Hawthorne conveyed a dark and romantic style of writing in â€Å"The Scarlet Letter†, impacting the society by focusing on the concepts of romanticism. The Scarlet Letter is considered a classic book and is still read today. Nathaniel Hathorne was born in Salem, Massachusetts on July 4, 1804. He was the son of Nathaniel and Elizabeth ClarkRead MoreNathaniel Hawthorne s The Scarlet Letter1896 Words  | 8 PagesIn a surface examination of the work of Nathaniel Hawthorne, it is quickly evident that no good things come from the wilderness. Therein, the wilderness is often associated with the savages and the devil. In his work The Scarlet Letter, Hester Prynne finds herself exiled by society for having an adulterous affair with the town reverend which brought forth the child known as Pearl. Pearl is quickly established as the child of the wilderness: wild, capricious, and thought by the town to be a demon-childRead MoreNathaniel Hawthorne s The Scarlet Letter1944 Words  | 8 PagesNathaniel Hawthorne adds a satirical twist throughout his novel The Scarlet Letter which manifests his perception of the Puritanism. The novel portrays the strictness and impact of Puritanism on human lives. Hawthorneâ€⠄¢s usage of Puritan characters and outcasts also demonstrate Hawthorne’s position on Puritanism. Throughout Hawthorne’s novel, all of the characters in this novel represent strong Puritan belief, Puritan lifestyle, strong resistance to Puritanism, and satirical Puritan lifestyles. HawthorneRead MoreNathaniel Hawthorne s The Scarlet Letter869 Words  | 4 Pagesview of human life. The most famous Dark Romantic writer, Nathaniel Hawthorne, emphasizes human proneness to sin and self-destruction, uses symbols that are considered dark, and believes that evil can overtake good. In The Scarlet Letter, Nathaniel Hawthorne employs elements of Romanticism and symbolism to communicate the idea that sin and guilt have psychological effects which can turn into physical and mental manifestations. Hawthorne utilizes the romantic element of the focus on the individualRead MoreNathaniel Hawthorne s The Scarlet Letter1193 Words  | 5 PagesThe Scarlet Letter, is most often referred to as Nathaniel Hawthorne’s best work. It gives a detailed image of life in a Puritan society. The heroine of the book-Hester Prynne, defies power, and rebels against colonial rule. Laws composed of religious convictions and individual beliefs. Through Hester’s action, you can depict a feminist consciousness. She differs from traditional colonial woman who s sole purpose it to be obedient, despite the unfair rules carried out by puritan men. Hester representsRead MoreNathaniel Hawthorne s The Scarlet Letter1850 Words  | 8 PagesShe s an archetype. She is Eve. She s Juno. She the good woman gone bad. She is Hester Prynne. As part of NPR s series, In Character, my colleague, Andrea Seabrook, shows how this Puritan woman is still very much alive today. ANDREA SEABROOK: Hester Prynne is the protagonist of Nathaniel Hawthorne s magnum opus The Scarlet Letter. Any serious literary scholar will tell you that she is one of the first strong women in American literature and is still among the most important. She s veiled(ph)Read MoreNathaniel Hawthorne s The Scarlet Letter2106 Words  | 9 Pagespeople of other religions. Because they â€Å"deeply and fervently believed that they were doing the work of God†, Puritans often punished and shunned those who did not follow their rules or share their same views (Collier 62). In Nathaniel Hawthorne’s The Scarlet Letter, Hawthorne presents these popular ideas and truths about the Puritan way of living in a symbolic story of submissive defiance. He creates a strong feminist that contradicts the majority of the Puritan views on feminism. This rebelliousRead MoreNathaniel Hawthorne s The Scarlet Letter2174 Words  | 9 PagesChildren encompass parents’ lives from the day t hey are born into this world, often altering their plans for the future and their desired outcomes for life. In Nathaniel Hawthorne’s The Scarlet Letter, the most seemingly complex and misinterpreted of characters is Pearl, the illegitimate daughter of Hester Prynne and Reverend Arthur Dimmesdale. The deviations in Pearl’s temperament, conduct, and character in the progression of the plot are a guide to the varying moral statuses of Hester and DimmesdaleRead MoreAnalysis Of Nathaniel Hawthorne s The Scarlet Letter 1606 Words  | 7 PagesMarin Fallon Mrs. Janosy English 2H 23 November 2015 Sin in the The Scarlet Letter The story of The Scarlet Letter by Nathaniel Hawthorne is one with many twists and turns. A young woman moves to Boston, Massachusetts while her husband takes care of affairs in England. After two years pass she secretly has an affair with the Reverend Arthur Dimmesdale. When she becomes pregnant and gives birth to her daughter Pearl, the town punishes her for committing the act of adultery. She is sentenced to standRead MoreSymbolism Of Nathaniel Hawthorne s The Scarlet Letter882 Words  | 4 PagesSymbolism in The Scarlet Letter The Scarlet Letter was a novel written in the 1850 s by a man named Nathaniel Hawthorne. Throughout the Scarlet Letter he uses scads of literary devices. The literary devices are there to give the novel more depth. The main device he uses in the novel is symbolism. Hawthorne uses the symbolism to make an object have more than one meaning. Three of the elements he uses as symbols are the scarlet letter, Pearl, and the forest. These symbols are seen differently by the Nathaniel Hawthorne s The Scarlet Letter - 1631 Words Nathaniel Hawthorne is famous for his works that revolve around the Puritan society. The Puritans were very stringent in the way they dealt with rules and ways of life, and Hawthorne does an exceptional job depicting the Puritan lifestyle through his stories. Though many principles from Puritan society has made its way to form the present day American society, Hawthorne might disagree and did not believe that the good attributes originated from Puritan ways. Nathaniel Hawthorne, through the works of his The Scarlet Letter and â€Å"Young Goodman Brown†, illustrates the difference between good and evil as well as the separation between the new and old generation and how the youth challenges the way of traditional Puritan society. This can be seen by Goodmans Brown’s character, the younger women at Hester Prynne’s public condemnation, Roger Chillingworth and Arthur Dimmesdale, and Hester’s relationship with her daughter Pearl. Nathaniel Hawthorne is most famous for writing The Scarlet Letter, which takes place during the 1600s in the Massachusetts Bay colony. The story is about a woman by the name of Hester Prynne, who had been sent to America by her husband and left alone alone for a year by herself. However, Hester commits adultery in the absence of her husband and made love with the young minister Arthur Dimmesdale. Hester could not hide her sin, for she could not keep the baby created from sin hidden from the public, therefore, she is forever marked with a scarlet A on herShow MoreRelatedNathaniel Hawthorne s The Scarlet Letter1187 Words  | 5 PagesPuritanism in Red Nathaniel Hawthorne’s The Scarlet Letter shows the early view of Puritanism by concentrating on sin, guilt, and its effects on society. Nathaniel Hawthorne conveyed a dark and romantic style of writing in â€Å"The Scarlet Letter†, impacting the society by focusing on the concepts of romanticism. The Scarlet Letter is considered a classic book and is still read today. Nathaniel Hathorne was born in Salem, Massachusetts on July 4, 1804. He was the son of Nathaniel and Elizabeth ClarkRead MoreNathaniel Hawthorne s The Scarlet Letter1631 Words  | 7 PagesNathaniel Hawthorne’s personal isolation originated in his early childhood and later developed the theme for his most renowned literary novel, The Scarlet Letter. In The Scarlet Letter, Nathaniel Hawthorne emphasized the impact that societal isolation can have on individuals. Several of the victims inflicted with isolation throughout the novel were ultimately met with their inevitable downfalls. One particular character, Hester Prynne, was selected to undergo a struggle comparable to Hawthorne’sRead MoreNathaniel Hawthorne s The Scarlet Letter1896 Words  | 8 PagesIn a surface examination of the work of Nathaniel Hawthorne, it is quickly evident that no good things come from the wilderness. Therein, the wilderness is often associated with the savages and the devil. In his wor k The Scarlet Letter, Hester Prynne finds herself exiled by society for having an adulterous affair with the town reverend which brought forth the child known as Pearl. Pearl is quickly established as the child of the wilderness: wild, capricious, and thought by the town to be a demon-childRead MoreNathaniel Hawthorne s The Scarlet Letter1944 Words  | 8 PagesNathaniel Hawthorne adds a satirical twist throughout his novel The Scarlet Letter which manifests his perception of the Puritanism. The novel portrays the strictness and impact of Puritanism on human lives. Hawthorne’s usage of Puritan characters and outcasts also demonstrate Hawthorne’s position on Puritanism. Throughout Hawthorne’s novel, all of the characters in this novel represent strong Puritan belief, Puritan lifestyle, strong resistance to Puritanism, and satirical Puritan lifestyles. HawthorneRead MoreNathaniel Hawthorne s The Scarlet Letter869 Words  | 4 Pagesview of human life. The mo st famous Dark Romantic writer, Nathaniel Hawthorne, emphasizes human proneness to sin and self-destruction, uses symbols that are considered dark, and believes that evil can overtake good. In The Scarlet Letter, Nathaniel Hawthorne employs elements of Romanticism and symbolism to communicate the idea that sin and guilt have psychological effects which can turn into physical and mental manifestations. Hawthorne utilizes the romantic element of the focus on the individualRead MoreNathaniel Hawthorne s The Scarlet Letter1193 Words  | 5 PagesThe Scarlet Letter, is most often referred to as Nathaniel Hawthorne’s best work. It gives a detailed image of life in a Puritan society. The heroine of the book-Hester Prynne, defies power, and rebels against colonial rule. Laws composed of religious convictions and individual beliefs. Through Hester’s action, you can depict a feminist consciousness. She differs from traditional colonial woman who s sole purpose it to be obedient, despite the unfair rules carried out by puritan men. Hester representsRead MoreNathaniel Hawthorne s The Scarlet Letter1850 Words  | 8 PagesShe s an archetype. She is Eve. She s Juno. She the good woman gone bad. She is Hester Prynne. As part of NPR s series, In Character, my colleague, Andrea Seabrook, shows how this Puritan woman is still very much alive today. ANDREA SEABROOK: Hester Prynne is the protagonist of Nathaniel Hawthorne s magnum opus The Scarlet Letter. Any serious literary scholar will tell you that she is one of the first strong women in American literature and is still among the most important. She s veiled(ph)Read MoreNathaniel Hawthorne s The Scarlet Letter2106 Words  | 9 Pagespeople of other religions. Because they â€Å"deeply and fervently believed that they were doing the work of God†, Puritans often punished and shunned those who did not follow their rules or share their same views (Collier 62). In Nathaniel Hawthorne’s The Scarlet Letter, Hawthorne presents these popular ideas and truths about the Puritan way of living in a symbolic story of submissive defiance. He creates a strong feminist that contradicts the majority of the Puritan views on feminism. This rebelliousRead MoreNathaniel Hawthorne s The Scarlet Letter2174 Words  | 9 PagesChildren encompass parents’ lives from the day t hey are born into this world, often altering their plans for the future and their desired outcomes for life. In Nathaniel Hawthorne’s The Scarlet Letter, the most seemingly complex and misinterpreted of characters is Pearl, the illegitimate daughter of Hester Prynne and Reverend Arthur Dimmesdale. The deviations in Pearl’s temperament, conduct, and character in the progression of the plot are a guide to the varying moral statuses of Hester and DimmesdaleRead MoreAnalysis Of Nathaniel Hawthorne s The Scarlet Letter 1606 Words  | 7 PagesMarin Fallon Mrs. Janosy English 2H 23 November 2015 Sin in the The Scarlet Letter The story of The Scarlet Letter by Nathaniel Hawthorne is one with many twists and turns. A young woman moves to Boston, Massachusetts while her husband takes care of affairs in England. After two years pass she secretly has an affair with the Reverend Arthur Dimmesdale. When she becomes pregnant and gives birth to her daughter Pearl, the town punishes her for committing the act of adultery. She is sentenced to stand
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