The Cash Conversion Cycle

MCK #3

3. The Cash Conversion Cycle is DSO (41.33) + DII (101.1) - APP (81.6) = 60.83 in 2017 and in 2016 it is 37.96 + 105.5 - 62.91 = 80.55. The cash impast for DSO between 2016-2017 is $45.25 million. The cash impact for DII between 2016 and 2017 was ($34.5 million). The cash impact for APP between 2016-2017 was $146 million.

4. The loan is being provided by the vendors in order to ease the burden on McCormick and because they have an established relationship with McCormick, they trust that the company will pay its dues.

5. A. get rid of unnecessary/unused PPE

B. increase sales

C. improve efficiency

6. 5/30, net 60 results in a 60% financing rate for the year. You’d want to compare it to average loan interest rates. It would lower it because it incentivizes buyers to pay quicker to get the discount.

7. This presents a problem because they don’t have a lot of cash available for them to use. Since then Gillette was purchased by Proctor & Gamble.

8. If the Day Sales Outstanding is too high it means they take too long to get their money, meaning they may not have a lot of cash on hand. If it’s too low that means they might be having problems getting rid of inventory.

9. The change in TAT is driven by the acquisition of RB and is short-term since it was a one time event.

MCK #4

See spread sheet

The company uses its short term borrowing for lines of credit and the issuance of commercial paper. The amount at year-end FY2017 is ($134.6 million). In 2019 $77.1 million will be due. In 2020, $576.8 million will be due. In 2021, 326.8 million will be due. In 2022, $1,182.6 million will be due.

They float their own debt in order to pay less interest expense from bank loans. We would interpret this as a very good “investment grade” bond. Because it is not considered a risky bond, bondholders would receive a lower interest rate. The rating would be lower because issuance of commercial paper can only be afforded by larger, investment grade companies.

If they were discounted at 8% the lease payments would be $119.88 million would be added to their debt. (The lease payments due 1+ yrs from year-end 2017)

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