Working capital policies (good and poor)

Provide at least two examples of organizations that have good working capital management policies, and two examples of organizations with poor working capital management policies. Please explain why the policies of your selected organizations are effective or ineffective. I chose these four companies, Microsoft, Apple, Hewlett-Packard and IBM, can you please response to the above questions on capital management policies good and poor, of the four chosen I am not sure if any qualify as poor, if not could you suggest, and please let me know how to read the balance sheet to see how compaies working capital management is achived.

© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/finance/working-capital-policies-good-and-poor-7gl3

Solution Preview

...ory / Cost of goods sold per day
= $985,000 / ($11,598,000 / 365) = 31 days.

Average collection period = ACP (or DSO) = Receivables / (sales / 365)
= $15,606,000 / ($60,420,000 / 365) = 94 days.

Payables deferral period = Payables / Purchases per day = Payables / (Cost of goods sold / 365)
= $12,830,000 / ($11,598,000 / 365) = 404 days.

Cash conversion cycle (CCC) = Inventory conversion period + Average collection period - Payables deferral period.

Therefore, MSFT's CCC = 31 days + 94 days - 404 days = -279 days.

Apple Inc. (AAPL)

Annual sales: $ 32,479,000
Cost of goods sold: $ 21,334,000
Inventories: $ 509,000
Accounts receivable: $ 6,151,000
Accounts payable: $ 8,558,000

Inventory conversion period = Inventory / Cost of goods sold per day
= $509,000 / ($21,334,000 / 365) = 267 days.

Average collection period = ACP (or DSO) = Receivables / (sales / 365)
= $6,151,000 / ($32,479,000 / 365) = 69 days.

Payables deferral period = Payables / Purchases per day = Payables / (Cost of goods sold / 365)
= $8,558,000 / ($21,334,000 / 365) = 146 days.

Cash conversion cycle (CCC) = Inventory conversion period + Average collection period - Payables deferral period.

Therefore, MSFT's CCC = 267 days + 69 days - 146 days = 190 days.

Two organizations that have good working capital management policies are Hewlett-Packard (HPQ)
and International Business Machines Corporation (IBM). Bellow are data from Hewlett-Packard (HPQ) and International Business Machines Corporation's (IBM) 2008 financial statement (balance sheet and income statement) (Yahoo Finance, 2009).

Hewlett-Packard (HPQ)

Annual sales: $ 118,364,000
Cost of goods sold: $ 89,592,000
Inventories: $ 7,879,000
Accounts receivable: $ 29,359,000
Accounts payable: $ 32,317,000 ...