Stairway to Heaven, Inc. makes fire safety equipment for thehomeowner. The firm has been...

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Stairway to Heaven, Inc. makes fire safety equipment for thehomeowner. The firm has been in business for four years. They havereceived the endorsements of insurance companies and firedepartments in the states of Illinois, Indiana and Wisconsin. Theyhave also been struggling and they have hired you to help them getpast some recent cash challenges. The following are the financialstatements from the past two years:
Income Statements Balance Sheets
2014 2015 2014 2015
Net Sales $    3,750,000 $   4,500,000 Cash $        400,000 $        150,000
Cost of Goods Sold         2,250,000        2,700,000 Accounts Receivable            500,000            800,000
Gross Profit         1,500,000        1,800,000 Inventories         1,450,000         2,000,000
General & Administrative           370,000          470,000 Total Current Assets         2,350,000         2,950,000
Marketing           200,000          250,000 Net Fixed Assets         1,050,000         1,550,000
Depreciation           100,000          140,000 Total Assets $     3,400,000 $     4,500,000
EBIT           830,000          940,000
Interest              30,000             40,000 Accounts Payable $        300,000 $        400,000
EBT           800,000          900,000 Bank Loan            150,000            250,000
Income Taxes           250,000          300,000 Accrued Liabilities            100,000            150,000
Net Income $        550,000 $       600,000 Total Current Liabilities            550,000            800,000
Long Term Debt            150,000            150,000
Common Stock            850,000         1,100,000
Retained Earnings         1,850,000         2,450,000
Total Liabilities and Equity $     3,400,000 $     4,500,000
Using the template introducedin the class exercise in week 8, and adding to it if you see fit,identify opportunities and programs to improve cash flow in thecompany. Show all calculations below.
Hint: I am looking for thesecalculations, at a minimum for both 2014 and 2015:
1. cash conversion periodcalculations using the 4 formulas.
2. Income StatementPerformance ratios
3. Liquidity ratios
4. Asset Turnover Ratios
5. Cash Burn/Cash Build andmonthly burn for 2015
6. Cash runway: is cash flowsituation urgent at December 31, 2015?

Answer & Explanation Solved by verified expert

3.8 Ratings (740 Votes)

1 cash conversion cycle is inventory conversion cycledebtors receivable cycle creditors payout cyce here we assume 365 days in a year so here a inventory cycle is Average Inventory Net Sales365 Average Inventory Inventory 2014Inventory 20152 145000020000002 1725000 Inventory Cycle is See Answer

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In: AccountingStairway to Heaven, Inc. makes fire safety equipment for thehomeowner. The firm has been in...Stairway to Heaven, Inc. makes fire safety equipment for thehomeowner. The firm has been in business for four years. They havereceived the endorsements of insurance companies and firedepartments in the states of Illinois, Indiana and Wisconsin. Theyhave also been struggling and they have hired you to help them getpast some recent cash challenges. The following are the financialstatements from the past two years:Income StatementsBalance Sheets2014201520142015Net Sales$ 3,750,000$ 4,500,000Cash$ 400,000$ 150,000Cost of Goods Sold 2,250,000 2,700,000Accounts Receivable 500,000 800,000Gross Profit 1,500,000 1,800,000Inventories 1,450,000 2,000,000General & Administrative 370,000 470,000Total Current Assets 2,350,000 2,950,000Marketing 200,000 250,000Net Fixed Assets 1,050,000 1,550,000Depreciation 100,000 140,000Total Assets$ 3,400,000$ 4,500,000EBIT 830,000 940,000Interest 30,000 40,000Accounts Payable$ 300,000$ 400,000EBT 800,000 900,000Bank Loan 150,000 250,000Income Taxes 250,000 300,000Accrued Liabilities 100,000 150,000Net Income$ 550,000$ 600,000Total Current Liabilities 550,000 800,000Long Term Debt 150,000 150,000Common Stock 850,000 1,100,000Retained Earnings 1,850,000 2,450,000Total Liabilities and Equity$ 3,400,000$ 4,500,000Using the template introducedin the class exercise in week 8, and adding to it if you see fit,identify opportunities and programs to improve cash flow in thecompany. Show all calculations below.Hint: I am looking for thesecalculations, at a minimum for both 2014 and 2015:1. cash conversion periodcalculations using the 4 formulas.2. Income StatementPerformance ratios3. Liquidity ratios4. Asset Turnover Ratios5. Cash Burn/Cash Build andmonthly burn for 20156. Cash runway: is cash flowsituation urgent at December 31, 2015?

Stairway to Heaven, Inc. makes fire safety equipment for thehomeowner. The firm has been in business for four years. They havereceived the endorsements of insurance companies and firedepartments in the states of Illinois, Indiana and Wisconsin. Theyhave also been struggling and they have hired you to help them getpast some recent cash challenges. The following are the financialstatements from the past two years:

						Income Statements	Balance Sheets
	2014	2015		2014	2015
Net Sales	$ 3,750,000	$ 4,500,000	Cash	$ 400,000	$ 150,000
Cost of Goods Sold	2,250,000	2,700,000	Accounts Receivable	500,000	800,000
Gross Profit	1,500,000	1,800,000	Inventories	1,450,000	2,000,000
General & Administrative	370,000	470,000	Total Current Assets	2,350,000	2,950,000
Marketing	200,000	250,000	Net Fixed Assets	1,050,000	1,550,000
Depreciation	100,000	140,000	Total Assets	$ 3,400,000	$ 4,500,000
EBIT	830,000	940,000
Interest	30,000	40,000	Accounts Payable	$ 300,000	$ 400,000
EBT	800,000	900,000	Bank Loan	150,000	250,000
Income Taxes	250,000	300,000	Accrued Liabilities	100,000	150,000
Net Income	$ 550,000	$ 600,000	Total Current Liabilities	550,000	800,000
			Long Term Debt	150,000	150,000
			Common Stock	850,000	1,100,000
			Retained Earnings	1,850,000	2,450,000
			Total Liabilities and Equity	$ 3,400,000	$ 4,500,000

Using the template introducedin the class exercise in week 8, and adding to it if you see fit,identify opportunities and programs to improve cash flow in thecompany. Show all calculations below.
Hint: I am looking for thesecalculations, at a minimum for both 2014 and 2015:
1. cash conversion periodcalculations using the 4 formulas.
2. Income StatementPerformance ratios
3. Liquidity ratios
4. Asset Turnover Ratios
5. Cash Burn/Cash Build andmonthly burn for 2015
6. Cash runway: is cash flowsituation urgent at December 31, 2015?