Working Capital Management Case 1 - Just For Feet, Inc Name Ashim Kumar Kar

Answer 1 Current Ratio in 2008 - Current Assets / Current Liabilities =$311,167/$155,706 =1.998 Current Ratio in 2009 - Current Assets / Current Liabilities = $449,490/$132,692 =3.387 Quick Ratio in 2008 (Current Assets Inventories)/Current Liabilities = ($311,167-$206,128)/155,706 = .6745 Current Ratio in 2009 - (Current Assets Inventories)/Current Liabilities = ($449,490-$399,901)/132,692 = .3737 The current ratio went up in 2009 because current assets increased and the current liabilities decreased while the quick ratio went down in 2009 because it has a component called Inventories which needs to be subtracted from current assets in the denominator. Inventories increased in 2009 to such an extent which nullified the effects of increase in current assets and decrease in current liabilities.

Answer 2 Working capital cycle of the company - Accounts Receivable Turnover in Days + Inventory Turnover in a Day Inventory Turnover in Days in 1998 - Average Inventory/ (Cost of Goods Sold / 365) Average Inventory = (206,128 +94,529)

= 300,657 Cost of Goods Sold /365 = 279,816/365 =766.61 Inventory Turnover in Days in 1998 = 392.19 days Receivable Turnover in Days - Average Gross Receivables/ (Annual Net Sales / 365) For 2008 (15,840 * 365)/478,638 =12.079 Therefore, working capital cycle of the company for 2008 is 392.19 +12.079 = 404.26 days Similarly for 2009 it is 452.28 +8.89 = 461.17 days

Answer 3 The ability of a company to pay its current obligations can be found out from its current ratio which is also known as liquidity ratio. By referring to the value of the current ratio found out in the 1st question 1.998 in 2008 and 3.387 in 2009 we can say that the ability of the company to pay its current obligations is improving. Answer 4 Few measures which help us find out about the solvency measure of a company are quick ratio, current ratio, net working capital etc Few measures which help us find out about the liquidity measure of a company are cash flow from operations, cash conversion efficiency, cash conversion period etc Current ratio Increasing Quick Ratio Decreasing Cash flow from operations in Fiscal 1997 - (56,295) and for the Fiscal 1998 (70,078) This shows that there is deterioration in the liquidity measure, which indicates that the company has to improve which is also indicated by quick ratio. Answer 5 The impact of the company growing faster than its sustainable growth rate can be at times disastrous. A company can grow faster than its sustainable growth rate when it takes drastic measures to finance its growth, when a company continuously scramble to increase its debt/equity ratio. These measures leads to a growth rate which is more than the affordable growth rate and leads to drastic consequences in the future.

Answer 6 Looking at the liquidity position of the company it can be clearly predicted that until and unless some changes are done their future is not that bright. They have to devise some ways to improve their cash flow which is negative as of now. Then they have to improve their operating cycle also. Apart from this improvement is also needed in the inventory department which as of now has very high value.