Monday, September 23, 2019
Analysis of Images of Organization by Gareth Morgan Essay - 1
Analysis of Images of Organization by Gareth Morgan - Essay Example I) He explains that ‘Metaphor is inherently paradoxical in nature and has far-reaching consequences. One major problem that faces modern management today is our mechanical way of thinking about organizations, that is so deeply rooted in us, that we find it find it very difficult to organize things in any other way. In Chapter 2, (Morgan, 2006, pg. 11) enlightens us on how labor became revolutionized and how machines took command in the workplace. In ancient times work was carried out in a very laborious way, making use of only manual labor. As time passed and people became more civilized they began making tools to assist them in their work. Nowadays, Mechanization has taken over every area of work making it much more easy for us than it was in ancient times. Productivity has increased a thousand fold because of the great transition from being a craft to factory production. (Morgan, 2006, pg. 11) However, in the course of this revolutionization in work culture, we have to bear the assault made on the human spirit. We have adapted ourselves to the machine age and have come to use machines as a metaphor for ourselves and the society at large because we have to mold ourselves according to mechanical principles that have become part and parcel of our lives. Gareth Morgan, in chapter 3 of Organization as Flux and Transformation explains the importance of an ‘Open System’ that involves a continuous cycle of transformation, input, output and constructive feedback. In order to achieve such a harmonious working atmosphere, it is imperative to maintain healthy relationships between the environment and the internal functioning of the organization. Referring to Humberto Maturana and Francisco Varela, Morgan argues that their opinions on the ‘Open system’ differ as they feel that ‘all living systems are organizationally closed, autonomous systems of interaction that make reference only to themselves.â€
Sunday, September 22, 2019
Ethics Goes To Hollywood Essay Example for Free
Ethics Goes To Hollywood Essay When we think of ethics with regards to Hollywood, some people might even question if there really are any left? With the growing number of moralists and critics that easily target Hollywood, ethics has become an important factor that seems to be set aside. Many of the movies that are being shown today presents violence, nudity and lack of values incorporated with the film. But there can always be an argument about how is ethics really perceived through the movie industry? Some might doubt but actually when we look pass through over-all violence and those unacceptable factors to moralists, some movies do posses ethics in them. Most of the time, those ethics are just overlooked by the over-all presence of the movie. When we analyze and breakdown a movie and study the characters there is a great opportunity to realize the moral fiber of the film. In recent memory, there are only a few movies that have produced an unusual style of presentation in the silver screen. One of those movies showed up during 2007 through a film titled â€Å"300†. It was based from Frank Millers graphic novel also named â€Å"300†. This movie adaptation of the novel is also based from the Battle of Thermopylae that was retold in a fictional sense. To further analyze the movie, the following paragraph will showcase the movies summary. Beginning with the presentation on a how a Spartan boy grows up and how he emerges to be king of Sparta, the movie was narrated by Dilios, a spartan soldier who was able to live and tell the tale. After years of being Spartas king, Leonidas received a messenger who was sent by the Persian ruler Xerxes. The messenger presented an offer that enraged king Leonidas, leading the messenger kicked down a seemingly bottomless pit. The message was sent clear, the Persian army is about to come, to invade Sparta and add it up to their growing territory. King Leonidas then consulted the Ephors, priests who consult the oracle for answers from the gods. Proposing a plan to block the Persian army by defending the Hot Gates of Thermopylae, King Leonidas was furious by the Ephors advice of not to fight because the oracle said that it was forbidden and the gods will get enraged if they do. Despite all of this, Leonidas stood strong with his firm decision to defend the Hot Gates. He gathered 300 of the greatest Spartan soldiers and assembled a party that would hold off thousands of Persians. As they have reached the Hot Gates, they defended it for days just to protect Sparta. King Leonidas courageously led the way by standing strong to his principles until the end. The number of the Persian army was too much for the 300 Spartans and eventually led to their deaths. Only one soldier was tasked to return to Sparta to tell the tale, Dilios, who forever made Leonidas and the 300 Spartans, remembered. LEONIDAS AND HIS VIRTUES The whole essence of the story evolved in Leonidas answer to his ethical dilemma that concerned with his decision to push through despite a number of people prohibiting him. One example was when he was discouraged by the Ephors or priests to pursue his plan because it was the time of the Carneian festival. His ethical dilemma would be is that if he pushes through with his plan, he would be disrespecting the Carneian but he would be able to salvage some time to defend Sparta. Despite the senates disapproval of sending the whole Spartan army, Leonidas faced his dilemma by standing strong with his beliefs and forming an army of 300 to continue his plan. Another example would be seen during the scene where the Persians were negotiating with Leonidas. First was during the arrival of the Persian messenger who offered Leonidas salvation of the Spartans from the Persian army if he yields. Another was during their stay at the Hot Gates, when King Xerxes himself talked to Leonidas personally and again proposed to have them spared if he yields to the Persians. Both of these instances presented a same result, Leonidas refusing to give up and standing strong to his principles. Choosing the side of whats right than whats wrong, suggests Leonidas firm ethical correctness and proper morality virtues. OTHER ETHICAL THEORIES PRESENTED Egoism is also depicted in the movie as seen in Xerxes motivation to rule and conquer the world. His actions towards self-interests boost his drive to invade and gain territories. In one instance, he even called himself the king and ruler of the world. A little bit of Egoism can also be attributed to Leonidas. His strong desire to win and his confidence to bring only 300 soldiers despite knowing that his enemy would be thousands in number suggests a showing of Egoism. CONCLUSION When we analyze the definition of ethics we easily incorporate it with whats write and whats wrong. Most of it solely depends on how we make that decision. The movie â€Å"300†despite its over-all violent nature still possessed that essential factor of morality and the integration of ethics through the characters, most especially Leonidas. Being the Spartan king, his decision to protect his kingdom by defending the Hot Gates despite disagreements by the senate and the priests caused his ethical dilemma. By overcoming this dilemma and choosing what he knows is right, it created a chain of events that lead to his popularity and immortality through the help of the story thats still known up to today. Despite Xerxes tempting offers in order for him to surrender, Leonidas strong principles carried him all the way to legendary proportions. Driven by a kings instincts, Leonidas died for the people of Sparta which caused them to be more inspired and more driven to defeat the Persian army that arrived pass the Hot Gates. All in all, despite Hollywoods descending reputation in accordance with moralists, people can still find ethics in movies. People just need to look pass through and analyze the details to get the even bigger picture. References Mackie, J L. (1977). Ethics: Inventing Right and Wrong. New York: Penguin Books. Simpson, R. H. (1972). Leonidas Decision. Phoenix (Vol 26, pp. 1-11).
Saturday, September 21, 2019
Structure and Chemical Composition of Silk
Structure and Chemical Composition of Silk Silk: A Natural Polymer By: David Church â€Å"The Silk Road,†a trading route that can be traced back to over 3600 years ago, but still is a household recognized name. Standing the test of time proves that this product was extremely important in shaping history. According to Chinese historians, silk began with the prince of China, Hoang-ti, and his wife, Si-ling-chi. The prince wanted his wife to contribute something important to their people. He assigned her the task of finding a use for the thread that came from silk worms. Si-ling-chi was able to develop a method to feed the worms, extract and reel the thread, as well as create clothing from the silk. The Chinese were able to keep not only the method of producing silk but also the source (the silk worm) a secret until about the sixth century. The nobility of the world was forced to pay as much as its weight in gold for silk until about 555 A.D. This is when two Nestorian monks were able to bring a few silk worm eggs to Constantinople, which began the spread of pr oduction through Europe and other parts of Asia.6 Silk can come from many different insects, including caterpillars, spiders, and worms. The most economically viable silk is produced from mulberry silkworms because they can be raised in captivity and their silk can be mass produced. The larva is born from an egg and must be fed mulberry leaves for up to one month before it is ready to create a cocoon of silk. Once it creates this cocoon, workers kill the larva inside using hot water or steam, and then proceed with the rest of the manufacturing process.5 The structure of this silk is composed of amino acids linked together in a long chain. Three main amino acids comprise 83.4% of the total polymer structure with trace amounts of many other amino acids. A total of up to 2592 different amino acids can be found in a polymer chain of silk. The three frequent amino acids include glycine, alanine, and tyrosine, with ratios in the polymer chain of about 1/2, 1/4, and 1/16 respectively. This leaves a ratio of about 3/16 of all other trace amino acids. If we denote glycine as G, alanine as A, tyrosine as T, and all the other amino acids as X, an outline structure of the polymer can be created to follow a pattern similar to: [G-A-G-T-G-A-G-X-G-A-G-X-G-A-G-X] n.2 Even though the chemical structure of this polymer chain seems like it could be very complex, the actual structure of the chain is relatively simple. The two most frequent amino acids present (glycine and alanine) in the polymer make up about 75% of the polymer chain and fortunately have two of the simplest individual structures of all amino acids. Glycine’s and alanine’s chemical structures are shown in Figures 1 and 2 respectively.2 Figure 1: Glycine Chemical Structure Figure 2: Alanine Chemical Structure The third most frequent amino acid present, tyrosine, is a little larger and more complex because it contains a benzene ring. Its chemical structure is shown in Figure 3.2 Figure 3: Tyrosine Chemical Structure The similarities in the chemical structure of these amino acids should be noted. As a generalization, all amino acids can be represented with an amino group, a hydrogen atom, a carboxylic acid group, and a side â€Å"R†group all attached to the alpha carbon as shown in Figure 4.2 Figure 4: Generalized Amino Acid Chemical Structure The method of synthesis that is used is step growth condensation polymerization. To perform this reaction, a hydrogen atom from the amino group of one amino acid reacts with the hydroxide molecule from the carboxylic acid group of another amino acid to form water. This allows for the nitrogen atom to bond directly to the carbon atom and start a chain. One step in the polymerization process between glycine and alanine is shown in Figure 5.1 Figure 5: Polymerization Step This process propagates in a chain of amino acids with the pattern previously shown in Figure 1. Denoting â€Å"R†for the side chain in tyrosine and â€Å"R1†for all the side chains in the numerous trace amino acids, a simplified polymer chain diagram would look something like what is shown in Figure 6.1 Figure 6: Simplified Polymer Chain2 As the name suggests, â€Å"The Silk Road†was a route taken in order to trade silk between communities, however, silk was not the only product being transported on this route. Silk is arguably known as the most significant product being transported at the time, but because of the existence of the Silk Road, it made it much easier to trade other commodities, such as gold, precious metals and stones, ivory, exotic animals, and religion. The route provided a means for Buddhist missions to travel from India to influence China. The starting point of the Silk Road and capital of China was Changan. During the heyday of the Silk Road, about 740 A.D., Changan grew into one of the largest cities of the time with a population of about two million people. As the Silk Road developed and the precious items became more widely known, it in turn became more dangerous to travel. Bandits took advantage of the long, desert road by attacking and looting caravans. To combat this, sections of the G reat Wall of China were constructed to defend the caravans.9 The simple pleasures that silk provided like comfort and social hierarchy caused a chain reaction that in turn led to the globalization of trade, religion, economy, and mass construction. Today, silk has taken on a new importance to society with the many technologically advanced uses that will be discussed later. Both the advantages and disadvantages of silk can mainly be contributed to the inherent biological nature of its formation. The advantages of silk come from comparing it with other natural threads and with artificially created threads. The mulberry silk worm produces large amounts of silk in a convenient cocoon shape that is easily industrialized unlike other natural threads. The natural process of protein organization with such chemical control has not been able to be replicated artificially in a laboratory. The first disadvantages of silk are bound by the limitations of nature. The only insect that is currently capable of mass producing silk is the mulberry silkworm. Other insects that produce silk such as spiders are carnivorous and independent in nature, and cannot produce mass quantities silk. Therefore, creating a farm of spiders that can produce enough silk becomes very difficult. The mulberry silkworm only creates one type of thread whereas a spider can produce typically five types of thread that have different and desired properties.4 A few other disadvantages include photo-yellowing, wrinkling recovery, and rub-resistance. Photo-yellowing is a phenomenon where the silk turns a yellowish tint after prolonged exposure to light. Silk cloth has poor wrinkling recovery meaning after it is creased; it is difficult to get it smooth again. The rub-resistance or abrasion-resistance of silk cloth is also poor, which is the ability to resist surface wear from flat rubbing on another material.5 The obvious example of a use for silk is cloth which also takes up the greatest portion of silk consumption. There are many other uses of silk specifically in the medical field that have arisen recently due to advances in technology. The fibers of silk have been used for sutures of wounds, because it does not trigger a response from the human immune system. For the same reason, it has been used as replacement ligaments, tendons, bones, and cartilage.3 After further research and development, a potential use is an artificial cornea made from a silk film that is lasered to become permeable. Another potential use currently under research is very thin, degradable silk films with electrode arrays printed on them. These films could form to the contours of the brain and potentially treat epilepsy and other conditions with less scarring than traditional procedures. New innovative uses for silk are surfacing and being researched regularly.4 Silk is a rapidly renewable resource that is both reusable and biodegradable. It has much less negative impact when compared to other fabrics if it is produced safely and organically. There is not much processing involved in the creation of silk that normally would cause unnecessary environmental impact. The mulberry plantations provide prevention to soil erosion from wind and water, as well as improving air quality by naturally filtering the air. Some silk has been advertised as being a â€Å"green†product when produced with the appropriate caution, but it also has negative environmental impacts associated with its production. 7 In non-organic production, pesticides and fertilizers are used in the growth of the mulberry trees that pollute the air when sprayed and the ground water when washed away by precipitation. Chemicals are used in the â€Å"degumming†process that are eventually wash off creating wastewater that in certain cases may or may not be reclaimed at a w ater treatment plant. In most areas silk is produced where populations are large and land is sparse, such as China, Japan, Italy, and India. The mulberry plantations take up a significant amount of land. 8 These are some of the few locations that have been able to successfully grow mulberry plantations; subsequently a great deal of transportation is required to deliver the silk to its consumers leading to pollution. As with any industrialized production, there are always environmental impacts both positive and negative that arise.7 References Ahluwalia, V.K., and Anuradha Mishra. Polymer Science. New Delhi: Ane Books Pvt. Ltd., 2008. Print. Bergmann, Max, and Carl Niemann. On the Strucure of Silk Fibroin. Journal of Biological Chemistry 122.2 (1938): 577-596. The Journal of Biological Chemistry. Web. 25 Sept. 2014. Boado, Christine. Hand Designed Silk Embroidery Art with Over 2,500 Years of History. Importance of Silk. Art of Silk, 12 Sept. 2012. Web. 25 Sept. 2014. http://www.artofsilk.com/blogs/news/6565365-importance-of-silk#.VCpd-GePLIV>. Fountain, Henry. The Reinvention of Silk. The New York Times 7 Mar. 2011, sec. Science: n. pag. The New York Times. Web. 25 Sept. 2014. Harding, John G., Lin M. Romer, and Thomas R. Scheibel. Polymeric Materials Based on Silk Proteins. Polymer 49.20 (2008): 4309-4327. Science Direct. Web. 25 Sept. 2014. Kitching, J. Howard. The Cultivation of a Silk Worm. The Decorator and Furnisher 5.2 (1884): 56. JSTOR. Web. 25 Sept. 2014. Muthu, Subramanian Senthilkannan. Assessing the Environtmental Impact of Textiles and the Clothing Supply Chain. Wiltham MA: Woodhead Publishing Limited, 2014. Print. Soulivanh, Somphong. Environmental Impacts of Trade Liberalization in the Silk Handicrafts Sector of the Lao PDR. International Institute for Sustainable Development. International Institute for Sustainable Development, 1 Dec. 2007. Web. 25 Sept. 2014. Wild, Oliver. The Silk Road. The Silk Road. Earth System Science University of California, 1992. Web. 25 Sept. 2014. http://www.ess.uci.edu/~oliver/silk.html>.
Friday, September 20, 2019
Edgar Allan Poe Biography
Edgar Allan Poe Biography Edgar Allan Poe was an important writer of the 19th Century. His imaginative storytelling led to literary innovations and earned him the nickname Father of the Detective Story' (Bio.com). His short story, The Murders in the Rue Morgue is the first example of detective fiction. His writings were often dark and scary. He was an early writer of the horror story. Poe had a rough childhood, depression and dark moods as an adult, and a bad early death. Poes life and writings can be compared to the modern writer of horror, Stephen King. There are things that are alike about the two authors and things that are different. Poe was born on January 19, 1809 in Boston, Massachusetts. He never knew his parents, who were actors. His father, David Poe Jr., left the family and died in about 1810 or 1811. His mother, Elizabeth Arnold Poe, died of tuberculosis at the age of twenty four in 191. Poe was three at the time, and her death may have warped Poe for the rest of his life. He always remembered more or less unconsciously-his mother vomiting blood and being carried away from him forever by sinister men dressed in black (Asselineau 409). She had 3 three children, and Edgar was separated from his brother and sister. His brother, William, died young, and Rosalie lost her mind. Edgar was taken in but not adopted by John and Frances Valentine Allan. Edgar was close to Frances, but not to John. John was a prosperous tobacco merchant in Richmond Virginia, and wanted Edgar to join him as a clerk in his business. Frances was probably responsible for taking Poe in. He was a good poet by the time he was thirteen, but his headmaster and John discouraged his poetry. Sometimes they were nice to him and sometimes not. The family moved to England in 1815 where Poe attended a classical academy until 1820. Then they came back to Richmond where Poe attended the school of Joseph H. Clarke and wrote several poems in honor of local schoolgirls. Edgar was in love and secretly engaged to Elmira Royster when he went to the University of Virginia 1826. The engagement fell through. Edgar did well and made good grades, but John did not give him much spending money so he got lots of gambling debts. Some scholars think that Poe drank heavily during that time, but others say that even small amounts of alcohol had a bad effect on him. John refused to pay the debts, so in 1927 Poe joined the army. He came back two years later when he learned that Frances Allen was dying of tuberculosis, but she died before he came home. In 1930 Allan got him into WestPoint, but he was expelled for poor handling of his duties, so in 1831 so Allan disowned him. Historians also know that John Allan had gotten married again without telling him, so they fought. Some people think that Edgar got expelled on purpose to get back at John. When John died, he didnt leave any money to Edgar, but he did leave money to an illegitimate child Edgar had never met. Duri ng this time, Poe wrote several volumes of poetry including Tamerlane and Other Poems (1827), and Poems (1831). Historians do not know much else about his life during this time, but in 1832 he was working in Baltimore writing short stories. By 1833 he was living with his fathers widowed and poverty-stricken sister Mrs. Clemm in Baltimore and won a $50 prize for the story MS Found in a Bottle in a short story contest in The Baltimore Saturday Vister. He also started working on a play, Politician, which he never finished. He began working for the Southern Literary Messenger of Richmond and by 1835 was its editor. For most of the rest of his life he worked for various magazines but was usually fired because of his strange behavior made worse by alcoholism. He wrote many poems, stories, and articles which got him a little money and lots of criticism. They also made him well-known. His poems always had an easy, unforgettable rhythm, and his stories were always weird and concerned with death. He still lived most of the time with Mrs. Clemm, and married his 13-year-old cousin Virginia Clemm in 1836 who was his literary inspiration as well as his love interest (Biography.com). She was pale and fragile, like many of Poes characters. He was very devoted to her, but in 1842 she broke a blood vessel while singing. She recovered somewhat, but died in 1847 of tuberculosis. Her death caused him to ruin his life. Some historians believe that his alcoholism got worse and he took a lot of drugs. Others believe that he became ill and because of a brain lesion in his youth, had manic and depressive moods. He also began to give attention to other women and became engaged again to Elmira Royster Shelton who was now a widow. He continued to write and publish many stories and poems throughout this time. Historians do not know exactly what he did for the last of his life, and his final days remain somewhat of a mystery (Biography.com). He continued to be very distraught over Virginias death. On September 28, 1849 he attended a birthday party in Baltimore, drank wine, and went on a drinking spree. He was found ill in a Baltimore gutter on October 3, 1849. He was taken to Washington College Hospital where he died on October 7. His last words were Lord help my poor soul (Biography.com). He was buried in what is now Westminster Churchyard on October 8, 1849, and a monument was built to him later. Mrs. Clemm and her daughter are buried next to him. Edgar Allen Poes stories often have dark themes of death, lost love, or dying. His characters are often alcoholics or have drug addictions. They are not happy stories and his characters sometimes seem insane. A modern person who is like Edgar Allan Poe is the horror writer Stephen King. Both authors had a hard early life and were abandoned by their fathers when they were very young. They were both good students in elementary school and started writing when they were young. Both moved around a lot as children and were outsiders in high school. In college both of these writers started drinking. Also, both of them worked hard to make it where they got. Poe worked so hard that when he was 16, he swam 7 miles across the James River to prove himself, emulating Lord Byrons swimming across the Hellespont, as a physical expression of his determination to make a name for himself, to be a great writer (Hoffman 323). Both of the authors wrote about characters that had drug and alcohol problems. Stephen King has also written a lot of stories and is an important writer. Unlike Poe, Stephen King has had a long and successful career, is very famous and has made a lot of money. He is about sixty-five year s old and he is still writing. Edgar Allan Poe wrote many stories, poems, and other things. He was a very important writer of the 19th century and is still recognized as one of Americas most influential writers. Even though he wrote almost 200 years ago, his stories and poems still, shock, surprise, and move modern readers (Biography.com). However he never made very much money, was mostly unrecognized during his life time and died young. He will always be remembered for his fascinating and gruesome works. Bibliography Asselineau, Roger. Edgar Allan Poe. American Writers: Volume 3. Ed. Leonard Unger. New York: Scribner, 1974. Hoffman, Daniel. Edgar Allan Poe. World Poets: Volume 2. Ed. Ron Padgett. New York: Scribner, 2000. 323-331. Print. Perkins, George, Barbara Perkins, and Phillip Leininger, eds. Poe, Edgar Allen. Benets Readers Encyclopedia of American Literature. New York: Harper and Row, 1991. 853-6. Print. Unger, Leonard. American Writers: A Collection of Literary Biographies. New York: Scribner, 1974. 409-432. Print.
Thursday, September 19, 2019
A Ladys Maid and Cinderella :: essays papers
A Ladys Maid and Cinderella The Lady’s Maid and Cinderella: Two Similar Storylines Children’s stories are often simple, with loveable characters and a feel-good ending. However, these simple plots sometimes have an underlying meaning that may be the basis for adult stories with social, intellectual, or emotional themes. For example, The Wizard of Oz, by L. Frank Baum, is not only about a girl who is looking for the way home who meets some charming friends along the way. It was written as Populist propaganda for the entire Populist movement of the early 1900’s! The children’s tale of Cinderella can be interpreted in much the same way. It portrays a young orphaned girl named Cinderella who is enslaved by her stepmother. She works diligently throughout her life, searching for love, comfort, and a home. The myth in Cinderella is very strong. The presence of a Fairy Godmother creates a supernatural element in the story. Through the mythical godmother, Cinderella eventually obtains happiness by marrying Prince Charming. In â€Å"The Ladyà ¢â‚¬â„¢s Maid,†by Katherine Mansfield, the narrator and maid is named Ellen. (Name similarity?) She, much like Cinderella, is loyal and quiet in performing her daily duties. Ellen is also searching for something to complete her life. But several incidents in Ellen’s life contribute to her un-Cinderella-like ending, including the fact that she does not have a mythical figure to help her out. These scenes, which are shown through Ellen’s responses to interactions with characters around her, prove Ellen to be a very complex character. Both Ellen and Cinderella experience sadness from childhood experiences and devotion to the ladies that they serve, but whereas Cinderella overcomes her problems in the end and finds happiness, Ellen carries her emotions so deeply that she cannot break free from her enslaved life. When comparing Cinderella and Ellen, a their childhoods are obviously similar in many respects. Both the girls lack a constant loving home and a strong mother figure. Losing a parent at a young age is distressing to Cinderella in much the same way as it is for Ellen. Because the girls were never close with their parents because of death, they never developed the ties of loving mother-daughter relationships. Cinderella worked for her stepmother at a very young age, and after Ellen lived with her grandfather and an aunt, she was sent to work as a maid at age thirteen.
Wednesday, September 18, 2019
Health and Diet Essay -- essays research papers
Health and Diet Abstract: With my personal life experience I'd like to clarify that a healthy diet and physical exercises help to lose weight. This passage introduces some scientific means to keep fit and, from both sides, indicates the effection that it may have brought along. Another point is that one should choose an appropriate way according to his personal case. Frustration and troubles are often met, but how to deal with them depend on ourselves. What is cricial is about persistence, optimism and rationalism.  ¢Ãƒ ±.Introduction £Ã‚ ºKeeping-fit is sweeping us while some irrational ideas, rather than appropriate ways to lose fat are penetrating into our life. Most people don't employ scientific ways so that body was badly damaged, even never repaired automatically. We recommend appropriate ways which not only perform the function of losing weight, also continue to help to establish personal confidence. One could enjoy the whole process rather than sense some burden. This passage wants to tell us the importance of scientific means to keep fit and take some focus on emotional change when dieting.  ¢Ãƒ ².Body: Keeping fit, at any present time, may fill up your mind. Dieting and sports have come by, playing the theme of the life. Now our focus is on which way to be the best way for you to keep fit. In my grade 3 of senior high school, I weighed 80 KG. I had been embarrassed to be of that kind of figure, when looking at myself, let alone when accepting others ¡Ã‚ ¯ unusual sight and ...
Tuesday, September 17, 2019
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
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