Gestão Financeira – MGEI – 2019/2020

Part I - 2. Assessing operational efficiency and liquidity

8. Reconstructing a balance sheet

Use the following information to complete the balance sheet below.

a) Collection period: 40 days

b) Inventory turnover: 6 times sales
c) Working capital requirement/sales: 20%
d) Liabilities/total assets: 60%
e) Cash in days of sales: 20 days
f) Short-term debt: 10% of total financial debt

Assume a 360-day year.

Assets Liabilities
Cash 400,000 Short-term debt
Accounts receivable Accounts payable
Inventory
Total current Total current liabilities

Net fixed assets Long-term debt

Owners’ equity
Total assets 5,000,000 Total liabilities and owners’

9. Industry effect on working capital requirement

Consider the following accounting data of these three firms:

Firm 1 Firm 2 Firm 3

WCR $1,489 ($4,250) $1,207

WCR/Sales 53.3% –27.6% 0.3%
Collection period 61.5 days 17.3 days 5.3 days
Inventory turnover 1.9 39.4 10.7

Which firm is: a retail store, a beverages store and a cruise company? Explain why.
10. Financing strategies
Firm A Firm B Firm C
Invested capital
Cash $0 $10 $ 0
Working capital requirement 25 15 25
Net fixed assets 50 50 50
Total invested capital $75 $75 $75

Capital employed
Short-term debt $0 $0 $10
Long-term financing 75 75 65
Total capital employed $75 $75 $75

a) Complete. Firm A Firm B Firm C

Net long-term financing

Net short-term financing

b) Which of the following companies has a matching, a conservative and an aggressive

financing strategy?

11. The financial effect of the management of the operating cycle

Managerial balance sheets Year-end Year-end Year-end
1 2 3

Cash $ 600 $ 350 $ 300

Working capital 3,930 4,440 6,100
Net fixed assets 1,200 1,300 1,450
Total invested capital $5,730 $6,090 $7,850

Capital employed
Short-term debt $ 300 $ 500 $1,900
Long-term financing 5,430 5,590 5,950
Long-term debt $1,300 $1,200 $1,100
Owners’ equity 4,130 4,390 4,850
Total capital employed $5,730 $6,090 $7,850

a) Comment on the change in financing policy. Has it become more conservative

or aggressive? What caused this change?

b) In year 3, firms in the same sector as this one had an average collection period of
30 days, average payment period of 33 days and inventory turnover of 8 days.
Suppose this firm had managed its operating cycle like the average firm in the
sector. What would have been the effect on its financing strategy? Consider the
following additional data from income statement and balance sheet: sales =
31.600, COGS = 25.100 and inventory from year 2 = 3200)