Question

Select a multinational company from the following industries:

Retail

Pharmaceutical

Computer Hardware

Manufacturing

Automotive

Review the selected company's most recent financial statements.

Calculate the following cash conversion cycle ratios based on the financial statements using Microsoft^® Excel^®:

Average inventory

Inventory turnover rate

Average account receivable

Account receivable turnover

Average collection cycle

Answer 1

A MNC in Retail industry:

Amazon.com

the financial statements are the published annual reports of the company.

Amazon.com Inc.
Consolidated Income Statement
US$ in millions
				Dec 31, 2018			Dec 31, 2017
Net product sales				141,915			118,573
Net services sales				90,972			59,293
Net sales				232,887			177,866
Cost of sales				(139,156)			(111,934)
Gross profit				93,731			65,932
Fulfillment				(34,027)			(25,249)
Marketing				(13,814)			(10,069)
Technology and content				(28,837)			(22,620)
General and administrative				(4,336)			(3,674)
Other operating expense, net				(296)			(214)
Operating income				12,421			4,106
Interest income				440			202
Interest expense				(1,417)			(848)
Other income (expense), net				(183)			346
Non-operating income (expense)				(1,160)			(300)
Income (loss) before income taxes				11,261			3,806
Provision for income taxes				(1,197)			(769)
Equity-method investment activity, net of tax				9			(4)
Net income (loss)				10,073			3,033
Based on: 10-K (filing date: 2019-02-01),
Amazon.com Inc.
Consolidated Balance Sheet: Assets
US$ in millions
		Dec 31, 2018			Dec 31, 2017
Cash and cash equivalents		31,750			20,522
Marketable securities		9,500			10,464
Inventories		17,174			16,047
Accounts receivable, net		13,310			9,692
Other		3,367			3,472
Accounts receivable, net and other		16,677			13,164
Current assets		75,101			60,197
Property and equipment, net		61,797			48,866
Goodwill		14,548			13,350
Other assets		11,202			8,897
Long-term assets		87,547			71,113
Total assets		162,648			131,310
Based on: 10-K (filing date: 2019-02-01), 10-K (filing date: 2018-02-02).
Consolidated Balance Sheet: Liabilities and Stockholders’ Equity
US$ in millions
	Dec 31, 2018		Dec 31, 2017
Accounts payable	38,192		34,616
Current portion of long-term debt	1,371		100
Current portion of capital lease obligation	7,720		5,839
Current portion of finance lease obligations	411		282
Other	14,161		11,949
Accrued expenses and other	23,663		18,170
Unearned revenue	6,536		5,097
Current liabilities	68,391		57,883
Long-term debt, excluding current portion	23,495		24,743
Long-term capital lease obligations, excluding current portion	9,650		8,438
Long-term finance lease obligations, excluding current portion	6,642		4,745
Construction liabilities	2,516		1,350
Tax contingencies	896		1,004
Long-term deferred tax liabilities	1,490		990
Other	6,019		4,448
Other long-term liabilities	27,213		20,975
Long-term liabilities	50,708		45,718
Total liabilities	119,099		103,601
Preferred stock, $0.01 par value; issued and outstanding shares — none	—		—
Common stock, $0.01 par value	5		5
Treasury stock, at cost	(1,837)		(1,837)
Additional paid-in capital	26,791		21,389
Accumulated other comprehensive loss	(1,035)		(484)
Retained earnings	19,625		8,636
Stockholders’ equity	43,549		27,709
Total liabilities and stockholders’ equity	162,648		131,310

Now according to these data’s:

1. Average inventory= (closing inventory+ opening inventory)/2

closing inventory=17,174

opening inventory= 16,047

average inventory= 17174+16047 / 2

= 16,610.50

2. Inventory turnover rate= Cost of Goods sold /Average Inventory

Cost of inventory= 139,156

Average inventory = 166,610.50

Inventory turnover= 139156/16610

= 8.38

3. Average account receivable: (opening account receivable + closing account receivable)/2

Opening account receivable= 9692

closing account receivable= 13310

= (13310+9692)/2

= 11501

4. Account receivable turnover= net credit sales/ average account receivable

Here total sales is assumed as credit sales

Sales = 232887

Receivable turnover= 232887/11501

= 20.25 times

5. Average collection cycle= 365/ receivable turnover

= 365/20.25

= 18 days