Working Capital

Your Activity responses should be both grammatically and mechanically correct and formatted in the same fashion as the Activity itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document them in a bibliography using APA style.

For this Activity, you will complete a preliminary report on Apple Computer’s short-term liquidity. The majority of this report requires computing liquidity measures and charting them, rather than analyzing liquidity. (The Stand-Alone Project requires a detailed liquidity analysis of Apple and its competition.) The first two (2) pages of this report consist of two (2) newly created worksheets (“Average BS” and “Ratios”) in your Apple Solutions workbook. The next seven (7) pages will consist of selected liquidity charts (one chart per page, seven (7) charts total in a newly created “PC Charts” workbook). The final page will be a narrative addressing a few liquidity considerations. The following instructions will facilitate your report completion. (100 points) (A 3-page response and nine (9) worksheets are required.)

Part A  Create a worksheet entitled “Average BS” in your Apple Solution workbook. Copy and paste Apple’s 1998 to 2002 balance sheets from Supplement I to this new worksheet.  Paste the copied information into the new worksheet two (2) times (one below the other).  For the second set of data, highlight and delete all of the figures.  This is the area where you will compute Apple Computer’s “average-for-the-year” balance sheets for 1999 through 2002.  To do this, start your computations by adding the cash balance for 1998 to the cash account’s balance for 1999 and divide by 2 in order to derive the “average” cash balance for 1999.

Repeat this procedure for all other accounts and years.  (Using the copy function can expedite this process.) (23 points) (A completed “Average BS” worksheet is required.)

Part B  Create a worksheet entitled “Ratios” in the Apple Solution workbook.  Copy and paste Apple’s 1999-2002 income statements from Supplement I to this new worksheet.  Then copy and paste the “average” balance sheets, computed in the “Average BS” worksheet in Part A (above) below the income statement data in the “Ratios” worksheet.  Then compute the following short-term liquidity measures and ratios for 1999-2002 in order below both sets of data.  (36 points)  (The “Ratios” worksheet with twelve (12) measures and ratios is required.)

  1. Working Capital
  2. Current (Working Capital) Ratio
  3. Quick (Acid-Test) Ratio (exclude deferred income tax assets in this computation)
  4. Inventory Turnover
  5. Number of Days In Inventory
  6. Accounts Receivable Turnover (assume all sales are credit sales)
  7. Number of Days In Accounts Receivable
  8. Inventory Conversion Cycle
  9. Accounts Payable Turnover (use cost of goods sold as the numerator)
  10. Number of Days In Accounts Payable
  11. Net Cash Conversion Cycle
  12. Liquidity Index (exclude deferred income tax assets in both the numerator and denominator)

 

Part C  Create another workbook (not another worksheet in the Apple Solution workbook) and title it “PC Charts.”  Use the Chart Wizard in your Excel program to create the following seven “line” chart types, which you will use to chart Apple’s liquidity measures.  (Line charts are better for plotting measures over time.)  Each chart should be an independent worksheet in the PC Charts workbook with the tabs appropriately labeled for identification purposes.  Plot all graphs from 1994 through 2002.  Use data from Appendix A of the text for 1994-1998 measures and your computations from 1999-2002.  (21 points)  (A “PC Charts” workbook consisting of seven (7) charts (worksheets) is required.)

  1. Current (Working Capital) Ratio
  2. Days in Inventory
  3. Days in Accounts Receivable
  4. Inventory Conversion Cycle
  5. Days in Accounts Payable
  6. Net Cash Conversion Cycle
  7. Liquidity Index

 

Part D  Discuss why it is necessary to average the balance sheet accounts but not income statement ones.  (10 points)  (A ½-page response is required.)

 

 

Part E  Discuss whether Apple’s inventory-related measures should be adjusted for LIFO reserves or LIFO liquidation.  (10 points)  (A ½-page response is required.)

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