Cash conversion cycle : Assignment

ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
(a) Cash conversion cycle.......................................................................................................3
(b) Risk to Apple....................................................................................................................5
(c) Apple share and debt.........................................................................................................6
PART 2............................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Cash conversion cycle and capital budgeting both are important in the context of the
financial management. Basically, the cash conversion cycle defines about the time which is
being taken for converting investments into cash or any other form. As well as capital budgeting
is a kind of technique which determines about whether company's large investments are worth
the funding of cash by capital structure or not. Herein, the project report cash conversion cycle of
year 2017 and 2018. As well as different kind techniques of capital budgeting like net present
value, internal rate of return etc. are discussed in the report.
PART 1.
(a) Cash conversion cycle.
Cash conversion cycle- The cash conversion cycle is beneficial in evaluating the time
which is being taken for converting investments into cash or other resources (Yazdanfar and
Öhman, 2014). Herein, the cash conversion cycle for Apple company are calculated below for
two year respectively 2017 and 2018:
Comparison of cash conversion of Apple and Samsung company for year 2017 and 2018
Samsung Apple
2017 2018 2017 2018
Days of
receivable
39.59 46.09 26.77 28.21
Days of inventory 61.17 74.39 9.04 9.82
Less- Days of
PayPal
21.98 24.21 111.72 116.95
Cash conversion
cycle
78.78 96.27 -75.91 -78.92
Interpretation

On the basis of above table of cash conversion cycle it has been analysed that both the
companies have different kind of Cash conversion cycle. The Samsung company has the cash
conversion cycle is of 78.78 in 2017 as well as in 2018, it is of 96.27. Apart from it, in the Apple
company their cash conversion cycle is of -75.91 in 2017 as well as in 2018, it is of -78.92. The
reason of this difference between both companies is that Samsung takes more time in collecting
receivables from debtors in compare to Apple company. As per 2017, Samsung takes 40 days to
recover their debts while Apple takes just 27 days. Same as in the inventory days, Samsung takes
61 days in converting inventory into cash, on the other hand Apple takes just 9 days. So these are
the reason of the difference in the cash conversion cycle days. Additionally, Apple company' s
cash conversion cycle shows positive sign in both the years.
Cash conversion of Apple company for year 2017 and 2018:
For year 2017:
Cash conversion cycle= Days sales outstanding+Days inventory- Payable period
26.77+9.04-111.72= -75.91
For year 2018:
Cash conversion cycle= Days sales outstanding+Days inventory- Payable period
28.21+9.82-116.95= -78.92
Working notes* -
1. Calculation of days outstanding (For 2017): Number of days /Receivable turnover
365/13.63= 26.7
2. Calculation of days outstanding (For 2018): 365/12.94= 28.21
3. Calculation of days inventory (For 2017): Number of days/ Inventory turnover
365/40.37= 9.04
4. Calculation of days inventory (For 2018): 365/37.17= 9.82
5. Calculation of payable period (For 2017): Average payables* 365/ Cost of good sold
[(37294+49049/2)] *365/141048
43171.5*365/141048= 111.71
6. Calculation of payable period (For 2018): [(49049+55888/2)] * 365/ 163756

52468.5*365/163756= 116.95
Cash conversion of Samsung company for year 2017 and 2018:
For year 2017:
Cash conversion cycle= Days sales outstanding+Days inventory- Payable period
39.59+61.17-21.98= 78.78
For year 2018:
Cash conversion cycle= Days sales outstanding+Days inventory- Payable period
46.09+ 74.39- 24.21= 96.27
Working note*:
1. Calculation of days outstanding (For 2017): Number of days /Receivable turnover
365/9.22= 39.59
2. Calculation of days outstanding (For 2018): 365/7.92= 46.09
3. Calculation of days inventory (For 2017): Number of days/ Inventory turnover
365/5.97= 61.13
4. Calculation of days inventory (For 2018): 365/4.91= 74.39
5. Calculation of payable period (For 2017): Average payables* 365/ Cost of good sold
[(6485039+9083907/2)]* 365/ 129290661
7784473*365/129290661
21.98
6. Calculation of payable period (For 2018): [(9083907+8479916/2)]*365/ 132394411
8781911.5*365/132394411
24.21
(b) Risk to Apple
1.The company has the risk of higher competition at the global level as well as technological
factors are also impacting to the financial performance.

2. The second risk is associated with the lack of credit facility provided by the company. As per
the cash conversion cycle, the company recovers credit from debtors in less time period. It shows
that company does not allow long time to their customers in payment of credit.
3. The third risk which company has that they are depended on the other networks for delivering
goods to the customers. This is why because company's products are being offered in different
countries and nations.
(c) Apple share and debt.
(I) As per the above graph, the company's share prices are fluctuating continuously. Like in
the duration of 2017 to 2018, the share price of company increased. On the other hand,
company's share price decreased after year 2015. So it shows that share prices of
company are not fixed.
(II) During time period of 2014 to 2018, Apple company has taken long time period. Such as
in year 2014, valuation of term debt was of $28,987. Further, it increased continuously
like in 2015, it increased and became of $ 53329. As well as in 2016, it became of $
75427 and in 2017, it increased again and became of $ 97207. On the other hand, in 2018
it decreased by less percentage and became $ 93735.
(III) Face value- 1000
Rate- 4.5%
Maturity- 2020

Maturity rate of interest - 5%
So payable interest is of $45 and present value of bond is of (0.53021*1000)= 530.21.
Present value of interest payment of one annuity of one bond at 6% is of 3.46 (for 13 years). As
well as value is of $155.88(3.46*45). So present value of bond is (530.21+155.88)= $686.09.
PART 2.
1 (a) The analysis does not consider the value of land because land is already purchased. As well
as depreciation is not charged by the depreciation. On the other hand, the land is purchased
which can be used for 20 years for different purpose.
2. (b) On the basis of source the free cash flow is of $ 2940000000.62 over 20 years time period.
3 (c) Net present value- The net present value is a kind of capital budgeting technique which is
related to the showing difference between the actual inflows and outflows over a certain time
period (Chen and Reynolds, 2012). The net present value of project is of $ 1562827494. So it can
be recommend to the company that they may select the project (Tsalikis and Martinopoulos,
2015).
4. (d) Internal rate of return- The IRR is an important technique of the capital budgeting (Percoco
and Borgonovo, 2012). In the context of the Apple company, the IRR is of 44% . They should
accept the project because it can be beneficial for them.
5. (e) As per the above calculation of the NPV and IRR, it has been analysed that company
should build the new store at that land. This is why because NPV and IRR, both are in the favour
of the company. The NPV is of $ 1562827494 and IRR is of 44%.
CONCLUSION
From above project report it has been concluded that different techniques of budgetary
control and calculation of cash conversion cycle can help to the companies in taking important
decisions. Herein, the project report cash conversion cycle of Apple and Samsung company is
calculated as well as NPV and IRR are also calculated to make suitable decisions.

REFERENCES
Books and journals:
Yazdanfar, D. and Öhman, P., 2014. The impact of cash conversion cycle on firm profitability:
An empirical study based on Swedish data. International Journal of Managerial Finance.
10(4). pp.442-452.
Chen, C., Li, G. and Reynolds, A., 2012. Robust constrained optimization of short-and long-term
net present value for closed-loop reservoir management. SPE Journal. 17(03). pp.849-
864.
Percoco, M. and Borgonovo, E., 2012. A note on the sensitivity analysis of the internal rate of
return. International Journal of Production Economics. 135(1). pp.526-529.
Tsalikis, G. and Martinopoulos, G., 2015. Solar energy systems potential for nearly net zero
energy residential buildings. Solar Energy. 115. pp.743-756.