Case Study | ASSESSING ROCHE PUBLISHING COMPANY 'SCASH MANAGEMENT EFFICIENCY | |
ASSESSING ROCHE PUBLISHING COMPANY 'S
CASH MANAGEMENT EFFICIENCY Lisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts is concerned about the firm 's high level of short term resource investment. She believes the firm can improve the management of its cash and, as a result, reduce this investment. In this regard, she charged Arlene Besseoff, the treasurer with assessing the firm 's cash management efficiency. Arlene decided to begin her investigation by studying the firm 's operating and cash conversion cycles. Arlene found that Roche 's average payment period was 25 days. She
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Industry Industry OC = Average Age of Inventory + Average Collection Period =85 days + 42 days =127 days Industry CCC= Operating Cycle - Average Payment Period =127 days - 40 days =87 days Industry Resources needed = Total annual outlays/365 days*Cash Conversion Cycle =12000000/365*87 =$2,860,273.97
c. Roche publishing resource = $5095890
Less: Industry resources = $2860274 $2365313
Cost of inefficiency = $2235616 * 0.12 = 2682274
d) Three factors are impacted as a result of relaxation of credit standards
• Changes in sales volume
• Investment in Accounts receivable
• Bad debt expenses Changes in sales Volume
Total Contribution Margin of annual sales: Under present plan ($13750000x0.20) $2,750,000
Under proposed plan ($15000000x0.20) $3,000,000
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