Refer to the financial statements for Wal-Mart, below

a. Calculate for X7 the ratios listed below. X6 numbers are provided for comparative purposes.
$\begin{array}{lr}
&X6&X7\
\text { Inventory turnover } & 4.96 \
\text { Days' inventory outstanding } & 77.20 \
\text { Accounts receivable turnover } & 120.58 \
\text { Days' receivable outstanding } & 3.28 \
\text { Payables turnover } & 12.39 \
\text { Days' payables outstanding } & 31.10 \
\text { Length of operating cycle } & 80.48 \
\text { Length of cash cycle } & 49.37 \
\text { Current ratio } & 1.51 \
\text { Quick ratio } & 0.12
\end{array}$
b. Working capital management is an important consideration for many companies. Which component of Wal-Mart's working capital do you think it spends most time managing? That is, which component is likely to be the most important? Why? What has happened to this component from X6 to X7?
Note: Use ending inventory, ending accounts receivable, and ending accounts payable in the calculation of days' inventory outstanding, days' receivable outstanding, and days' payables outstanding respectively. Use average inventory, average accounts receivable, and average accounts payable in the calculation of inventory turnover, accounts receivable turnover, and payables turnover respectively.

Question

Refer to the financial statements for Wal-Mart, below

a. Calculate for X7 the ratios listed below. X6 numbers are provided for comparative purposes.
$\begin{array}{lr}
&X6&X7\
\text { Inventory turnover } & 4.96 \
\text { Days' inventory outstanding } & 77.20 \
\text { Accounts receivable turnover } & 120.58 \
\text { Days' receivable outstanding } & 3.28 \
\text { Payables turnover } & 12.39 \
\text { Days' payables outstanding } & 31.10 \
\text { Length of operating cycle } & 80.48 \
\text { Length of cash cycle } & 49.37 \
\text { Current ratio } & 1.51 \
\text { Quick ratio } & 0.12
\end{array}$
b. Working capital management is an important consideration for many companies. Which component of Wal-Mart's working capital do you think it spends most time managing? That is, which component is likely to be the most important? Why? What has happened to this component from X6 to X7?
Note: Use ending inventory, ending accounts receivable, and ending accounts payable in the calculation of days' inventory outstanding, days' receivable outstanding, and days' payables outstanding respectively. Use average inventory, average accounts receivable, and average accounts payable in the calculation of inventory turnover, accounts receivable turnover, and payables turnover respectively.

Quizplus · Accepted Answer

The Answer is a.

\begin{array}{lrr}&X6&X7\ ext { Inventory turnover } & 4.96 & 5.25 \ ext { Days' inventory outstanding } & 77.20 & 68.40 \ ext { Accounts receivable turnover } & 120.58 & 123.51 \ ext { Days' receivable outstanding } & 3.28 & 2.90 \ ext { Payables turnover } & 12.39 & 11.89 \ ext { Days' payables outstanding } & 31.10 & 32.82 \ ext { Length of operating cycle } & 80.48 & 71.31 \ ext { Length of cash cycle } & 49.37 & 38.48 \ ext { Current ratio } & 1.51 & 1.64 \ ext { Quick ratio } & 0.12 & 0.16\end{array}

b. You would expect Wal-Mart to spend most of its efforts managing its inventory. It is by far the largest component of its current assets. It tries very hard to maintain the minimum levels of inventory which still servicing the needs of its customers. The inventory turnover has actually increased from X6 levels, which is a good sign.

Refer to the Financial Statements for Wal-Mart, Below