BA 101 1st Edition Lecture 12 Outline of Last Lecture 1 Deadlines and Peanuts Crackerjacks 2 Lecture Product strategy Outline of Current Lecture I Deadlines and Foundation II Working Capital III Cash Flow Introduction Current Lecture I Deadlines and Foundation Round 3 is due Tuesday 18th at 11 59 pm Round 4 is due Thursday 20th at 11 59 pm Fatal Errors in Foundation Allowing a red number to be saved such as MTBF Pricing lower than the variable cost or not making enough product for your contribution to cover your fixed costs Round 3 cautions Several competitors have new products coming out this year which will take a little market share away from you So remember to reduce your sales forecast maybe by about 200 units II Working Capital Stock Price Book Value owner s equity of shares Owner s equity is the initial investment or common stock and reinvested net income retained earnings Earnings per Share Net income of shares Wealth created for owners Dividend Cash distribution of profit to owners Business Operation Return on sales net income sales How much of your sales dollar is profit This measure the efficiency of your operations Increase ROS decrease variable period costs These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute III Asset Turnover sales total assets is a measure of activity How good are you at using your equipment to turn cash into inventory and inventory into sales cash and accounts receivable Working Capital Definition Working capital represents the extent to which a company can cover pay off its current liabilities with its current assets Working capital WC currents assets amount minus current liabilities amount The higher the ratio the better A low WC ratio indicates that the company may have trouble meeting its current liabilities with the assets that are most easily converted to cash A high WC ratio means a healthy company that could easily pay off its current obligations with current assets Where do you find the working capital On the balance sheet where you can find current assets and current liabilities Cash has been depleted from last year Where is it It was eaten up by inventory a result of poor sales forecasting or poor production planning Accounts payable increased What happened Partially offsets high inventory levels it is like an interest free loan from suppliers Cash Flow Statement Shows movement of cash in and out of an organization over a given period Shows how much cash is available for use during a given period Reconciles net profit back to cash Managing cash is particularly difficult during times of rapid expansion PROFIT IS NOT THE SAME AS CASH