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The Hopewell Pharmaceutical Company’s balance sheet and income statement for last year are as follows:
Balance Sheet ( in Millions of Dollars)
Assets Liabilities and Equity
Cash and marketable securities $1,100 Accounts payable $ 900
Accounts receivable 1,300 Accrued liabilities
Inventories* 800 (salaries and benefits) 300
Other current assets 200 Other current liabilities 700
Total current assets $3,400 Total current liabilities $1,900
Plant and equipment (net) 2,300 Long-term debt and other
Other assets 1,000 liabilities 1,000
Total assets $6,700 Common stock 1,800
Retained earnings 2,000
Total stockholders’ equity $3,800
Total liabilities & equity $6,700
*Assume that average inventory over the year was $800 million, that is, the same as ending inventory
Income Statement (in Millions of Dollars)
Net Sales $6,500
Cost of Sales 1,500
Selling, general, and administrative expenses 2,500
Other expenses 800
Total expenses $4,800
Earnings before taxes 1,700
Taxes 680
Earnings after taxes (net income) $1,020
a. Determine Hopewell’s cash conversion cycle.
b. Give an interpretation of the value computed in (a).