CH.13Cycles (production, collection, accounts payable)
Average Collection Cycle/Accounts Receivable=
Cash conversion cycle = Production cycle + Accounts receivable cycle – Payment
cycle
A/R Turnover = Credit Sales/Avg.
A/P Turnover = Cost of Goods Sold/Avg.
Operation cycle = Collection cycle + Production cycle
Collection cycle= 365/A/R Turnover
Production cycle = 365/Inv. Turnover
Payment cycle = 365/A/P Turnover
EAR = (1+HPR)365/n -1
Calculate the APR and EAR implied by the discount being offered using Equations
13.12 and 13.13 as follows:
EAR=
(Where OC = cost per order; S=annual sales; and Q = order size)
The reorder point = daily usage * days of lead time
Average inventory = EOQ/2 + safety stock
At terms of 1/10, net 30 you will get 1% off and be allowed to pay in 10 days,
otherwise the full amount is due in 30 days
HPR = .01/.99 = 1.0101%
EAR = (1+HPR)365/20 – 1
= (1.0101)18.25 -1
= 20.129%
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Inventory Turnover = COGS / Average Inventory
Average Production Cycle = 365 / Inventory Turnover
CH.14 (Du-point analysis; return on equity – profitability rates)
Equity = total assets - liabilities
According to the Du Pont breakdown, we have
ROE = Net Profit Margin * Total Asset Turnover * Equity Multiplier
 ROE = NI/S * S/TA * TA/Equity
Note: since we don’t have the accounting information for the average, we have
to figure out the industry’s equity multiplier by some algebraic manipulation.
Equity Multiplier = Total Assets/Equity
Now, debt ratio = Total Debt/Total Assets
Total Assets = Total Debt + Equity
 (Total Debt/Total Assets) +( Equity/Total assets) = 1
 Equity/Total Assets = 1 – (Total Debt/Total Assets)
 TA/E = 1/(1-TD/TA)