Homework SourseWalmart vs Macys Consider the following financial informatio
(Walmart vs. Macy’s) Consider the following financial information for the year ending 1/31/2013 for Walmart and Macy’s (figures rounded, in $ millions):
Walmart
Macy’s
Sales
469,000
28,000
COGS
352,000
17,000
Receivables
7,000
400
Payables
59,000
5,000
Inventory
44,000
5,000
a. Compute the cash-to-cash cycle (C2C) for both companies.
b. Which company has the better cash flow performance?
| Walmart | Macy’s | |
| Sales | 469,000 | 28,000 |
| COGS | 352,000 | 17,000 |
| Receivables | 7,000 | 400 |
| Payables | 59,000 | 5,000 |
| Inventory | 44,000 | 5,000 |
Solution
a.
Cash to cash Cycle = Days for cash in inventory + Days for cash in A/C Receivable - Days for cash in A/C Payable
No. of days in accounting period is assumed to be 365 day.
For Walmart:
Days for cash in inventory = inventory / (COGS / No. of days in accounting period)
Days for cash in inventory = 44000/(352000/365) = 45.625 days
Days for cash in A/C Receivable = A/C Receivable / (Sales / No. of days in accounting period)
Days for cash in A/C Receivable = 7000/(469000/365) =5.448 days
Days for cash in A/C Payable = A/C Payable / (COGS / No. of days in accounting period)
Days for cash in A/C Payable = 59000/(352000/365) =61.179 days
Thus,
Cash to cash Cycle = 45.635 + 5.448 – 61.179 = -10.11 day approx.
For Macy’s:
Days for cash in inventory = inventory / (COGS / No. of days in accounting period)
Days for cash in inventory = 5000/(17000/365) = 107.353 days
Days for cash in A/C Receivable = A/C Receivable / (Sales / No. of days in accounting period)
Days for cash in A/C Receivable = 400/(28000/365) = 5.215 days
Days for cash in A/C Payable = A/C Payable / (COGS / No. of days in accounting period)
Days for cash in A/C Payable = 5000/(17000/365) = 107.353 days
Thus,
Cash to cash Cycle = 107.353 + 5.215 – 107.353 = 5.22 days approx.
b.
Walmart has better cash flow performance in comparison to Macy’s as cash to cash cycle of Walmart is smaller and negative than that of Macy’s.
Negative cash to cash cycle is considered good and it can only be achieved when Walmart sticks to their receivable and payable management policies and payable days are bigger.
