Universal Electronics Inc

1) Prepare the manufacturing staff’s calculations for the three alternatives (please refer to the attachments):

To consider this we need net credit sales and average receivable balance. This ratio indicates average collection period should be consistent with corporate credit policy. An increase suggests a decline in financial health of customers.

This is a weakness for CBI because it could indicate that they are not collecting from their buyers in efficient or timely manner. When a company has large amounts of funds that are uncollected they do not have the cash on hand to purchase raw materials and pay expenses, which can negatively impact its ability to turn a profit. This will be examined further when the average collection period is analyzed later in this report.

J reflects department store chain. This industry is a retail business; therefore, there is a large amount of inventories. This industry also has high accounts receivable because usually customers pay with credit cards which are billed at the end of the month. However, sometimes, customers forget to pay their bills on time, and the bills are brought to next month. Therefore, the collection period is approximately 2 months.

1.) Significant level of indebtedness affecting financial flexibility for business expansion. The UnitedHealth Group had a long term debt (less current maturities) of $8.7 billion in FY2010 as compared to that of $7.5 billion in 2006 ("Research and Markets", 2012).

Chesapeake Health Plans debt management structure reflected a significant decline from the 2008 fiscal year of 68% to 55.2% in 2009. This decrease was a 13% drop from that of the previous year. By dividing the total debt by the total assets, Chesapeake’s debt ratios can be calculated and further managed effectively. Furthermore, these figures from

Even though the company has been turning in profits, the ineffective collection practice, not availing trade discounts on time and ineffective inventory management has led the company in need of larger financing needs.

Starbucks Corps had its gross account receivables for the year 2015 increase by 14.44% which led to its net receivables increase by $88,000,000 which translates to an increase of 13.95% of the net account receivables. This was followed by an increase in doubtful debts through the previous year by 6.12% to %6,700,000 from the ear 2014. This is due to the increase in the number also sales which led to the increase in account receivables and also doubtful debts in 2015. The risk that the company undertook also increases in line with the increase in account receivables.

University of Phoenix. (2015). Working capital simulation [Multimedia]. Retrieved from University of Phoenix, FIN571 website

11. Accounts receivable turnover and days sales in accounts receivable for the last three years:

Support: The Company’s revenues increased considerably (19%). However, the Accounts receivables also increased significantly (38%). Increase in revenues are generally associated with a proportional increase in the allowance for doubtful debts. By not reporting a significant ‘allowable for bad debt accounts’, the company is able to overstate its profits and could be a cause for concern in the long run, if the receivables turn out to be bad.

Accounts receivable turnover is the second method by which a company’s trade receivables’ liquidity can be evaluated (Gibson, 2011). Žager et al. (2012) noted turnover ratios should be as high as possible as this indicates a firm’s ability to convert its assets more often. 3M’s accounts receivable turnover for years 2007 and 2008 is shown in Exhibit 2. In 2007, 3M turned its accounts receivable over 7.12 times and 7.70 times in 2008. This calculates into a turnover of its accounts receivable every 51.28 days in 2007 and 47.38 days in 2008. The increase in accounts receivable turnover times per year (decrease in number of days to turnover accounts receivables) from 2007 to 2008 is a positive trend for 3M. It suggests, along with the prior calculation, the management of receivables is likely to be improving in efficiency.

Global Electronics, Inc. (GEI), headquartered in Sarasota, Florida, designs, manufactures, and markets discrete power semiconductors and analog, digital, mixed-signal, and radiation-hardened integrated circuits for signal processing and power-control applications. The company employs about 2,300 people at its three U.S. fabrication facilities (located in Huntsville, Alabama; Evansville, Indiana; and Reading, Pennsylvania), and has 4,000 employees at its assembly and test facility in Kuala Lumpur, Malaysia. In 1999, GEI 's profitability came down with operating losses reaching $100 million on sales of approximately $650 million, causing management concern about the accuracy of the company 's standard cost system.

To increase sales a company may relax their credit polices “review the relationship between sales and receivables to determine if receivables are increasing more rapidly than sales” (Schroeder, Clark, &Cathey, 2009, p. 158).

Britvic PLC was compelled in 2007 to increase with approximately 10 days the period in which credit customers pay their liabilities, so that the impact of economic recession over the organisation’s profit was reduced by maintaining the drop in the level of sales at an acceptable level. One year later, in 2008, an 8 days decrease in his ratio was recorded, followed by a 2 days increase in 2009. As reported by their financial statements, the debtors’ days ratio has been stable for the past two years, a sign of recovery after the economic recession, but not as low as in the economic boom, characteristic for the 2005-2006 period.