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 Explain in 700 words the importance of the cash conversion cycle, including: Discuss the purpose of the cash conversion cycle and its components. Analyze the results obtained in the cash conversion cycle equations. Propose strategies to increase the cash flows of the company under study

Answer 1

Volkswagen

The Volkswagen Group, is a German multinational automotive manufacturing company headquartered in Wolfsburg, Lower Saxony, Germany.It designs, manufactures and distributes passenger and commercial vehicles, motorcycles, engines, and turbomachinery and offers related services including financing, leasing and fleet management.

Volkswagen was founded in 1937, to manufacture the car which would become known as the Beetle. The company's production grew rapidly in the 1950s and 1960s, and in 1965 it acquired Auto Union, which subsequently produced the first post-war Audi models.

Volkswagen AG shares are primarily traded on the Frankfurt Stock Exchange.

Cash Conversion Cycle (CCC) measures how fast a company can convert cash on hand into even more cash on hand. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties.

Cash Conversion Cycle is one of several measures of management effectiveness.

Volkswagen AG's Cash Conversion Cycle for the fiscal year that ended in Dec. 2017 is calculated as

Cash Conversion Cycle	=	Days Sales Outstanding	+	Days Inventory	-	Days Payable
	=	105.23	+	72.9	-	44.71
	=	133.42

Volkswagen AG's Cash Conversion Cycle for the quarter that ended in Dec. 2017 is calculated as:

Cash Conversion Cycle	=	Days Sales Outstanding	+	Days Inventory	-	Days Payable
	=	101.45	+	77.35	-	42.7
	=	136.10

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

nventory turnover measures how fast the company turns over its inventory within a year. It is calculated as Cost of Goods Sold divided by Total Inventories. Volkswagen AG's Cost of Goods Soldfor the three months ended in Dec. 2017 was $58,288 Mil. Volkswagen AG's Total Inventories for the quarter that ended in Dec. 2017 was $49,408 Mil. Volkswagen AG's inventory turnover for the quarter that ended in Dec. 2017 was 1.18.

Days Inventory indicates the number of days of goods in sales that a company has in the inventory. Volkswagen AG's Days Inventory for the three months ended in Dec. 2017 was 77.35.

Total Inventories can be measured by Days Sales of Inventory (DSI). Volkswagen AG's days sales of inventory (DSI) for the three months ended in Dec. 2017 was 63.69.

Inventory-to-Revenue determines the ability of a company to manage their inventory levels. It measures the percentage of Inventories the company currently has on hand to support the current amount of Revenue. Volkswagen AG's Inventory-to-Revenue for the quarter that ended in Dec. 2017 was 0.70.

Accounts Receivable are created when a customer has received a product but has not yet paid for that product. Volkswagen AG's accounts receivables for the quarter that ended in Dec. 2017was $78,702 Mil.

Accounts receivable can be measured by Days Sales Outstanding. Volkswagen AG's Days Sales Outstanding for the quarter that ended in Dec. 2017 was 101.45.

In Ben Graham's calculation of liquidation value, accounts receivable are only considered to be worth 75% of book value. Volkswagen AG's Net-Net Working Capital for the quarter that ended in Dec. 2017 was $-242,425 Mil.

Cash flow is one of the most critical aspects of any business. Cash flow is the amount of money that flows into and out of an organization in the form of purchases (or money actually paid) and expenses. Cash flow does not account for invoices that were sent out and were not paid or are in collections. It is a measurement of the way that money is moving through a business — a measurement of its liquid assets.

Even if a business is profitable, poor money management can drive it into the ground.

Here are five ways to improve your cash flow, fast.

Increase your prices

If your cost of operations has not increased, raising your prices will have an immediate impact on your bottom line. Just make sure to prep your clients in advance of the changes to avoid sticker shock.

Encourage your employees to upsell and cross sell

Restaurant businesses are great at getting customers to spend more for side dishes, premium drinks and "value meals." Use this inspired tactic at your business, and work with your team to develop special bundles or upgrades for your best customers.

Re-examine your inventory

Conventional wisdom says that for most businesses, 80 percent of their profits come from 20 percent of their products. Take a look at your best and worst sellers, and develop a plan to offload the goods that are tying up capital and not moving.

Try a crowdfunding campaign

If you have a project that you want to start, try a crowdfunding site like Kickstarter and GoFundMe. They allow business to receive money from a wide range of people in a short amount of time.