Project #37591 - Assignment

These are my answers to the two discussion questions. All I need is a response (2-3 sentences total, 2 statements and/or a question) to the four responses like before. Try to let your responses agree to the answers I have responded with. 


Question 1


A company with inadequate cash flow is unlikely to be able to take advantage of opportunities that may present themselves. For example, if a company with inadequate cash flow wants to launch a new product to compete against another company's product, it is unlikely to have sufficient internally generated cash flow to launch the new product or convince outside investors to provide resources.

Based on changing balance sheet items, name and describe five activities that decrease an organization's cash position and five activities that increase an organization's cash position.


Question1 Answer:



Different operating activities affect the company’s cash position either positively or negatively. The main activities that increase the company’s cash position include but not limited to the following discussed below. Issuance of company stock. By issuing or selling the company’s stock, a company generates more cash from the shareholders. Accruing expenses. Another way that a company increases the cash position is by accruing expenses. When a company incurs costs and then fails to pay for them in that financial period, then the cash balance increases. Collecting accounts receivable. When a company collects money that is due to them then this increases the cash balance. The sale of fixed assets. Whenever a company sells part of its fixed assets, then this increases the cash balance. Borrowing. Another way that a company improves its cash position is by borrowing money. This can be from banks, other financial institutions. There are means that decrease the company’s cash position. These are described below. Paying dividends. Whenever a company pays its shareholders through dividends then this reduces the cash available. Purchase of fixed assets. Whenever a company buys fixed assets, then this reduces the cash available for operations. Prepaying expenses. Sometimes companies prepay some of its expenses. Whenever a company does this, then this reduces the cash. Paying debt. When a company pays part of its debt, then it reduces the cash available for its operations. Selling goods on credit. Many companies sell their goods or services on credit. Whenever this happens then the available cash for operations reduce.




Insufficient cash flow is detrimental to any company. Without the liquidity to meet financial obligations businesses are likely to fail. Additionally, poor cash flow limits growth and the ability to expand. This creates a potential sustainable competitive disadvantage. On the other hand hording large volumes of cash could be perceived as a failure to invest it so to increase stock holders wealth. There are ways to manage cash flows for precautionary and transaction motives. Decreasing cash flows should be used for expansion of the company, or other wealth increasing activities while increasing cash flows is used to increase efficiency.  

Decrease cash flows: (p805)

  1. Payment of accounts payable: payment of raw materials or products
  2. Wages, taxes, and other expenses: Cost of business
  3. Capital expenders: property and long term non-liquid asset expenses
  4. Long-term debt: loans taken requiring principle and interest payments.
  5. Dividend payments: Paying stock holders dividend with cash funds
  6. Repurchasing stock: paying cash for stock

Increase cash flows and liquidity:

  1. Order management using JIT: decreases current assets, increasing cash on hand
  2. Liquidate capital expenders: sell real property which is sitting idle
  3. Increasing long-term debt through capital structuring
  4. Reduce receivables collection period by collecting on debt and policies granting credit to worthy customers
  5. Selling stock: By selling stock the company will increase cash flows in the near term, but will reduce cash flows in the long run.
  6. Selling other assets for cash.









Question 2


Walmart is a successful retailer. It is cognizant of how quickly it disburses cash and then collects that cash. This is a measure of the firm's cash conversion cycle. The higher this number is relative to its competitors, the more liquidity risk the firm will face. A company can strive to reduce its cash conversion cycle by implementing a just-in-time inventory methodology approach.

Locate a retail company and calculate its cash conversion cycle. Locate a computer company and calculate its cash conversion cycle. Compare and evaluate these numbers. What can be done to reduce these companies' cash conversion cycles?


Question 2 Answer:


The cash conversion cycle is an indicator of the liquidity of a company. Wal-Mart’s cash conversion cycle has deteriorated from 7 to 13 by 2013. On the other hand, IBM’s cash conversion cycle has been changing over the last four years and by 2013, the cash conversion cycle was one. IBM should not do anything to change its cycle but Wal-Mart needs to look at its supply chain and maybe adopt a just in time inventory system.




Dollar Tree, a popular discount retailer has a cash conversion cycle, CCC, for the fourth quarter ending May 3, 2014 of 187 days. This is up from the January 28, 2012 CCC of 99.1 (Rocket, 2012)

Fourth quarter May 3, 2014

Sales = 2000.3COGS = 1303.70
Inventory = (2) 1042.5 inventory (1) 1035.3
Accounts Receivable = (2) 92.8 (1) 56.6
Accounts Payable = (2) 447 (1) 393.9


Days Inventory is Outstanding; DIO = average inventory / (COGS/365)

Days Sales are Outstanding; DSO = average accounts receivable / (revenue/365)

Days accounts Payable are Outstanding; DPO = average accounts payable / (COGS/365)

(Muller, 2014)


DIO = (1042.5 + 1035.3)/2 = 1038.9

     1038.9/ (1303.7/365) = 1038.9/3.572 = 290.845

DSO = (92.8 + 56.6)/2 = 74.7

      74.7/(2000.3/365) = 74.7/5.480 = 13.631

DPO = (447 + 393.9)/2 =420.45

     420.45/3.572 = 117.707

CCC = (290.845 + 13.631) - 117.707 = 186.769 or 187 days

Using the same method to compute HP computer’s CCC for 2013


DIO = 26

DSO = 52

DPO = 59

26 + 52 – 59 = 19

In comparing the two market CCC, it would be expected that HP is much more capable of fulfilling financial obligations, which would accompany a lower beta as a higher liquidity ratio is associated. Trend analysis of the past five years would suggest that HP would have a better stock return as they manage their cash cycle more effectively (Forbes, 2012).


Dollar Tree Inc. (2014). Quarterly Results. Retrieved from

Forbes. (2012). The Cash Conversion Cycle. Retrieved from

HP. (2013). HP Reports Fiscal Year 2013 Results. Retrieved from


Muller, J. (2014). Understanding The Cash Conversion Cycle; Investopedia. Retrieved from (2012). Dollar Tree Inc. Operating Efficiency. Retrieved from







Subject Mathematics
Due By (Pacific Time) 08/15/2014 12:00 pm
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