Assessing Roche Publishing Company'Scash Management Efficiency |
Case Study | ASSESSING ROCHE PUBLISHING COMPANY 'SCASH MANAGEMENT EFFICIENCY | |
ASSESSING ROCHE PUBLISHING COMPANY 'S
CASH MANAGEMENT EFFICIENCY Lisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts is concerned about the firm 's high level of short term resource investment. She believes the firm can improve the management of its cash and, as a result, reduce this investment. In this regard, she charged Arlene Besseoff, the treasurer with assessing the firm 's cash management efficiency. Arlene decided to begin her investigation by studying the firm 's operating and cash conversion cycles. Arlene found that Roche 's average payment period was 25 days. She consulted the industry data, which showed that the average payment period for the industry was 40 days. Investigation of three similar publishing companies revealed that their average period was also 40 days. She estimated the actual cost of achieving a 40-day payment period to be $53,000.
Next, Arlene studied the production cycle and inventory policies. The average age of inventory was 120 days. She determined that the industry standard as reported in a survey done by Publishing World, the trade association journal, was 85 days. She estimated the annual cost of achieving an 85-day average age of inventory is $150,000. Further analysis showed Arlene that the firm 's average collection period was 60 days. The industry average, derived from the trade association data and information on three similar publishing companies, was found to be 42 days - 30% lower than Roche 's. Arlene estimated that if Roche initiated a 2% cash discount for payment within 10 days of the beginning of the credit period, the firm 's average collection period would drop from 60 days to the 42-day industry average. She also expected the following to occur as a result of the discount: Annual sales would increase from $13,750,000 to $15,000,000; bad
ASSESSING ROCHE PUBLISHING COMPANY 'S
CASH MANAGEMENT EFFICIENCY Lisa Pinto, vice president of finance at Roche Publishing Company, a rapidly growing publisher of college texts is concerned about the firm 's high level of short term resource investment. She believes the firm can improve the management of its cash and, as a result, reduce this investment. In this regard, she charged Arlene Besseoff, the treasurer with assessing the firm 's cash management efficiency. Arlene decided to begin her investigation by studying the firm 's operating and cash conversion cycles. Arlene found that Roche 's average payment period was 25 days. She consulted the industry data, which showed that the average payment period for the industry was 40 days. Investigation of three similar publishing companies revealed that their average period was also 40 days. She estimated the actual cost of achieving a 40-day payment period to be $53,000.
Next, Arlene studied the production cycle and inventory policies. The average age of inventory was 120 days. She determined that the industry standard as reported in a survey done by Publishing World, the trade association journal, was 85 days. She estimated the annual cost of achieving an 85-day average age of inventory is $150,000. Further analysis showed Arlene that the firm 's average collection period was 60 days. The industry average, derived from the trade association data and information on three similar publishing companies, was found to be 42 days - 30% lower than Roche 's. Arlene estimated that if Roche initiated a 2% cash discount for payment within 10 days of the beginning of the credit period, the firm 's average collection period would drop from 60 days to the 42-day industry average. She also expected the following to occur as a result of the discount: Annual sales would increase from $13,750,000 to $15,000,000; bad