Working Capital Strategies

June 22, 2015
Michele Huss

Working Capital Strategies
Working capital is defined as “as the difference between current assets and current liabilities” ("Working Capital", 2015). Our team has reviewed important financial reports such as the most recent balance sheet and cash flows statements, taking relevant data to be analyzed for how it will impact cash management strategies. In order to have a distinct impact and increase profits there has to be growth and innovation, positively impacting consumer interest in Apple’s product line. To do this Apple executives and management have to have a clear image of where they are presently, and what needs to be accomplished to reach their goals. Included is a description of how current assets and liabilities affect cash flow management, this information is important because it allows management to make strategic decisions to increase revenue and market share. Our team has had the opportunity to make capital recommendations based on the assumption that Apple’s forecasted revenue will increase by twenty percent to management that includes detailed pro forma reports. The final area our team will focus on is how the increased revenue will effect Apples working capital policy, identifying lessons we have learned and highlighting areas that can be developed further. This gives members of senior management a clear outline of where this business Apple is and what it will take to attain their future financial goals.
Increased Forecasted Revenues: MEGAN
Any company's revenue has the ability to increase or to decrease each year. Let's observe Apple's current income statement; in accordance to Google Finance (2015), Apple's most recent income statement of March 3rd, 2015 had the company's total revenue at $58 million. Assuming we forecasted correctly, Apple's revenue increases 20% in 2016, let's say roughly $69 million. The company would have not only to perform well over the course of the year but also had to of developed a new piece of technology that the public loved. Over the past couple of years, Apple has managed to progress and present several products into the marketplace that clients excitedly expect. If a company's revenue increases it is most likely to increase their gross profit as well, and Apple appears to be using their working capital funds effectively. It is the information that's provided but financial statements; for example, balance sheet, income statement, & cash flow statement) that demonstrate whether that company is profitable. And whether there is sufficient ability to meet the working capital also needs to the long-term debt.
Current Assets & Liabilities Affect Cash Management: MEGAN
The information one can obtain from financial statements provided by trend analysis, ratio analysis and the footnotes to the financial statements offer important information about the management of a company and its potential success over time. The only way anyone can learn how successful and profitable a company is involved careful and concise analysis of a company's financial statements. How are Apple's assets and liabilities affecting their cash flow? A closer look at the numbers demonstrates $231,839,000 in total assets and $120,292,000 in total liabilities (Yahoo Finance, 2015). So, increases in accounts receivable, inventory and prepaid expenses hurts the cash flow, decreases in these areas help the cash flow. Increases in short-term operating liabilities help cash flow where a decrease would hinder the cash flow. Apple does not seem to be in any distress at this point, and that is because of their innovative products. Poor cash flow makes nearly impossible to hire and retain decent employees; again Apple does not fall short here either. Lastly, the company's accounts receivable turnover and inventory (part of company assets) also to the actual cash flow analysis, determine how efficient revenues translate into cash flows. This aids in the determination when it comes to the company's health and stability.
Capital Recommendation: MEGAN
Any company, profitable or not should have a working capital recommendation. Calculating a pro forma is essential to the capital recommendation. According to Way (2007) a company's pro forma is the forecasted financial statements that are based on either anticipated future events or potentially changing business performance in upcoming periods. After research, I have constructed the following pro forma chart using the financial statements located in the Google Finance and Yahoo Finance references. Reference Way (2007) demonstrates how to calculate a five-year pro forma.
Free Cash Flow