The management of Pharmaceutical Manufacturers (PM) understand that for the firm to perform better, it must improve its working capital efficiency. You have been provided with the following extracts from the financial statements to comment on the overall working capital efficiency of the firm. Pharmaceutical Manufacturers (PM)Condensed Balance sheet (amounts in millions) at 31 December 2014Assets Liabilities & EquitiesCash and Cash Equivalents$460Accounts Payable$550Inventory450Accrued Expenses45Accounts Receivable300Bank Borrowings750Prepaid Expenses200Bonds600Non-Current Assets2100Ordinary Share Capital1200 Retained Earnings365Total Assets$ 3510Total Liabilities & Equities$3510 Condensed Balance sheet (amounts in millions) at 31 December 2015Assets Liabilities & EquitiesCash and Cash Equivalents$500Accounts Payables$500Inventory425Accrued Expenses400Accounts Receivables450Bank Borrowings800Prepaid Expenses350Bonds580Non-Current Assets2300Ordinary Share Capital1200 Retained Earnings545Total Assets$ 4025Total Liabilities & Equities$4025 The cost of sales was $900 million and net sales were $1600 million in 2015. There were no cash sales. TASKS(a) Calculate the 2015 Operating cycle (b) Calculate the 2015 Cash (conversion) cycle (c) Comment on the overall working capital efficiency of the firm.

Financial ratios (FR) are those line statements which states the financial health of business and…

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Financial Reporting, Financial Statement Analysis and Valuation

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ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

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The management of Pharmaceutical Manufacturers (PM) understand that for the firm to perform better, it must improve its working capital efficiency. You have been provided with the following extracts from the financial statements to comment on the overall working capital efficiency of the firm. Pharmaceutical Manufacturers (PM)
Condensed Balance sheet (amounts in millions) at 31 December 2014
Assets		Liabilities & Equities
Cash and Cash Equivalents	$460	Accounts Payable	$550
Inventory	450	Accrued Expenses	45
Accounts Receivable	300	Bank Borrowings	750
Prepaid Expenses	200	Bonds	600
Non-Current Assets	2100	Ordinary Share Capital	1200
		Retained Earnings	365
Total Assets	$ 3510	Total Liabilities & Equities	$3510
Condensed Balance sheet (amounts in millions) at 31 December 2015
Assets		Liabilities & Equities
Cash and Cash Equivalents	$500	Accounts Payables	$500
Inventory	425	Accrued Expenses	400
Accounts Receivables	450	Bank Borrowings	800
Prepaid Expenses	350	Bonds	580
Non-Current Assets	2300	Ordinary Share Capital	1200
		Retained Earnings	545
Total Assets	$ 4025	Total Liabilities & Equities	$4025

The cost of sales was $900 million and net sales were $1600 million in 2015. There were no cash sales.

TASKS

(a) Calculate the 2015 Operating cycle

(b) Calculate the 2015 Cash (conversion) cycle

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