The Renaissance and Its Influences

Renaissance which is likewise alluded as the resurrection is the period that began in the fourteenth century and wound up in the seventeenth century. The period was set apart by expanded premiums and advancement in Art, writing, legislative issues, science, religion and music.Advertising We will compose a custom paper test on The Renaissance and Its Cultural, Political and Economic Influence explicitly for you for just $16.05 $11/page Learn More The period was portrayed by flood of enthusiasm for old style learning and qualities. Renaissance is generally taken as the scaffold that connected the medieval time and the advanced human progress. Despite the fact that Renaissance came about to extraordinary changes in numerous scholarly endeavors, for example, political and social change, it is for the most part associated with its incredible commitments in workmanship and music. This period is set apart with revelation of new landmasses, extraordinary development in business and creation and uses of advancements, for example, paper printing, black powder and utilization of marine compass. The time is viewed as a time of restoration of traditional learning after quite a while length of social stagnation and decrease (Brotton, 2006). The resurrection of Renaissance is accepted to have begun in Italy as ahead of schedule as in the fourteenth century. The restoration of Renaissance in Italy is accepted to have been affected by various components among them a positive language. During this period, Latin language was considered as the language of researchers. Due tom its intricacy, it was anything but a typical language to numerous individuals by at that point and in this manner not suitable language for the learning procedure. Numerous individuals required a more straightforward language to comprehend higher information that was related with the Renaissance. This came about to the development of national vernacular language all over Europe that extraordinarily encouraged the spread of the belief system of the new researchers. Italy was the primary country to create extraordinary journalists in the Renaissance time frame. Britain then again created Standard English that was profoundly powerful during the Renaissance in the learning procedure. Germany likewise accepted the open door to make an interpretation of the good book into Germany language which significantly helped numerous Germans to peruse and comprehend the holy book better (Guisepi, n.d). The incredible logical development and advancement during this period helped the Renaissance time frame significantly. The associations of Christians and Arabs as they exchanged helped the Christians learn arithmetic, science and exploratory science from the Arabs who were progressively educated in these concepts.Advertising Looking for article on history? We should check whether we can support you! Get your first paper with 15% OFF Learn More The new information they got from Arabs empowered them to tur n out to be increasingly basic with issues. Outfitted with the logical information, individuals began to acknowledge and apply just what appeared to be consistent to them. Along these lines, this learning changed the perspectives on numerous individuals who began to scrutinize some customary convictions which they had gained from the congregation about certain national wonder (Guisepi, n.d). Some logical developments, for example, the creation of craft of printing helped extraordinarily in transmitting information during the Renaissance procedure. This is on the grounds that the pieces of literature was circulation and gotten to all the more effectively by numerous generally and by huge number of individuals. This procedure was generally seriously used to instruct individuals about the new and present day ideas that were identified with the cutting edge civic establishments. So also, the development of attractive compasses helped in the revelation of new landmasses, for example, the Africa mainland. This thusly intensified the European exchanging courses which empowered them make more benefits. The creation of black powder changed the legislative issues in Europe significantly. Once in the past, the Middle Ages were portrayed with the preeminent government in Europe where aristocrats were the person who were called to offer military help to the ruler during emergencies cases. With the development of black powder, the European legislative issues incredibly changed as lords began to accept the political force that was being practiced by the aristocrats. This thus advanced foundation of brought together governments in numerous pieces of Europe. The development in exchange and business likewise enormously helped in the Renaissance. New exchanging courses and urban communities developed. The dealers were known to travel a ton and subsequently were incredibly instrumental in the spread of the thoughts of the advanced human advancements as they exchanged the new urba n areas set up. The Renaissance impacted Europe socially, strategically and financially. The renaissance was actually quite instrumental in the territories of grant, workmanship, music and design. The renaissance was related with returning to the information on Greece and Rome to rediscover this information and apply it in the cotemporary setting. This encouraged numerous colleges being set up in numerous pieces of Europe where numerous lawmakers were instructed on the old style information under Guicciadini. The effect of Renaissance on workmanship was incredible. By the utilization of Humanism which concentrated on mankind, the cutting edge ideas that were found out empowered the craftsman to part from workmanship directed specialty of the Middle Ages and grasp the common worldview.Advertising We will compose a custom paper test on The Renaissance and Its Cultural, Political and Economic Influence explicitly for you for just $16.05 $11/page Learn More also, engineering grew signif icantly which empowered the conventional design of the medieval times being supplanted by progressively present day human-driven design that was profoundly grasped all over Europe. Thus, the Renaissance came about to improved development and advancement in exchange and business that came about to rise of banking offices in numerous pieces of Europe. Improve exchange go came about to rise of urban focuses and urban communities, for example, Florence and Venice urban communities that inevitably rose above to become realms. Other European countries, for example, England and Spain followed suite to build up their own urban areas. The foundation of urban areas came about to an incredible change in European legislative issues which required the possibility of tact. Numerous individuals in Europe and particularly Italy contemplated strategy during the Renaissance time frame. It was from Italy that the idea of perpetual, occupant envoys began during the Renaissance time frame. The idea of d iscretion empowers Italy to keep up significant universal relations forward-thinking (Craig, Graham, Kagan, Ozment, Turner, 2009). The Protestant Reformation was an European Christian change development that came about to the foundation of Protestantism as a constituent piece of the contemporarily Christianity. The development was started as a dissent towards certain catholic ceremonies, precepts and religious structures of the Catholic Church. The dissent came about to a Counter Reformation development which was going by Jesuit request. The Counter Reformation came about to recovery of numerous pieces of Europe which incorporate Poland, portions of England back to Catholic confidence. The explanation that persuaded the renewal to start in Germany is on the grounds that Germany was the primary country that made an interpretation of the holy book into Germany language which improved the Germans to comprehend the holy book when they read it all the more successfully. Well comprehensio n of the book of scriptures incited Germans Christians to begin scrutinizing some Catholic customs and precepts which they considered to negate the Christianity educating as communicated by the bible.Advertising Searching for paper on history? We should check whether we can support you! Get your first paper with 15% OFF Find out More The logical disclosures that went with the Renaissance edified individuals extraordinarily. One of incredible revelation is the Copernican hypothesis which proposed that the sun and other planet pivoted around a focal sun. This disclosure confronted a great deal of obstruction from numerous researchers and furthermore from the scholars who challenged with this revelation as they guaranteed it repudiated what the book of scriptures expressed. This reality was demonstrated later when Galileo concocted telescope that was utilized to obviously see far off articles. The human advancements that was related with Renaissance was illuminated individuals couldn't any more drawn out underestimate anything, however gave a valiant effort to search for important realities to help thoughts (Cronin,1992) . Reference List Brotton, J. (2006) The Renaissance: A Very Short Introduction. New York: Prentice Hall. Craig, A. M., Graham, W. A., Kagan, D., Ozment, S., Turner, F. M. (2009). The legacy of world human advancements (eighth ed.). Upper Saddle River, NJ: Pearson Prentice Hall. Cronin, V. (1992). The Renaissance. London: Oxford University Press. Guisepi, R.A. (n.d). The Renaissance Beginning and Progress of the Renaissance. Web. This article on The Renaissance and Its Cultural, Political and Economic Influence was composed and put together by client Caden Holloway to help you with your own investigations. You are allowed to utilize it for exploration and reference purposes so as to compose your own paper; in any case, you should refer to it appropriately. You can give your paper here.

The Use Of Leadership And Motivation In Management Tourism Essay

The Use Of Leadership And Motivation In Management Tourism Essay This report is essentially founded on the investigation of the utilization of Leadership and Motivation in Management inside a socially assorted business Environment with exceptional thought to the chose contextual analysis is NOVOTEL Hotels in UK. As accommodation industry it self drawing in with various individuals in various culture it ought to obviously see how to deal with this assorted variety in cordiality industry. It tends to be oversee in various manners. From these ways worker inspiration and the administration is a compelling methodology which is should have been considered. In this investigation first thought was given to unmistakably distinguish the writing foundation of the three ideas as initiative, inspiration and social decent variety through the investigation of speculations, ideas b y exploring articles, diaries, web articles, books, etc. At that point after that the thought was given to the contextual analysis including distinguish the association and its circumstance and how the association deals with the social assorted variety by utilizing the administration and the inspiration. At that point dependent on the contextual analysis, investigation and discoveries were recognized. As a general this investigation is centered around examining the significance of social decent variety as an instrument for improved authoritative advancement without considering it as a regulatory issue and it tends to be the way to grow serious fringe and achievement, on the off chance that it effectively dealt with. About the Organization Novotel is one of the inn brands of the Accor bunch which works in mid scale headquartered in France. Novotel is Europes biggest inn network and one of 12 universally famous lodging brands claimed by Accor, the French inn gathering. As of now they are having 400 inns and resorts in 60 nations, arranged in the focal point of significant universal urban communities from business regions to visitor goals. Structure those inns there are 266 lodgings in 23 nations inside Europe. So here the uncommon thought was given to NOVOTEL inns in United Kingdom. The ground level examination was done in NOVOTEL London West. Writing Review The writing survey of this investigation was for the most part centered around three principle zones. i.e Leadership, Employee Motivation and social decent variety. Authority Authority implies the capacity and ability to lead and inspire a gathering of individuals. It incorporates improving group execution and viability just as articulating vision for business improvement. Pioneers should assume three significant jobs in the association in particular relational jobs, instructive jobs and decisional jobs. These jobs require various abilities, for example, creating peer connections, doing dealings, spurring subordinates, settling clashes, building up data systems, settling on choices with little data and allotting assets. There are two particularly various sorts of pioneers one who works with and through others, for example, the individuals who head associations, affiliations and so forth, while the others are way pioneers/visionaries, for example, heads of state, military administrators and so on. Among the numerous meanings of initiative, two can be viewed as the best (a) the capacity to get unprecedented execution from customary individuals, and (b) the capacity to get supporter. Fundamentally the styles of initiative can be distinguished as follows: 1. Dictatorial style 2. Law based style 3. Free Rein 4. Appealling 5. Situational Source: Study Material. [1997]. Hierarchical Behavior. Indian Institute of Management and Technology, Chennai Imperious Style It might be called as legitimate or order style as well. In this style of administration the pioneer concentrated the force and dynamic in him and exercise full oversight over the subordinates. He defines the gathering objectives and structures and methodology for work. Through the dictatorial style of control, the cooperative choice is consigned in a difficult spot and develops speedy dynamic procedure. Regularly this sort of initiative creates disappointment among individuals. In any case, speed and proficiency are required when working in a gathering, the imperious style of initiative yield great outcomes. Fair Style This is a differentiation style of administration contrasted with absolutist initiative. Individual settling on this style resembles a hypothesis Y pioneer which welcomes choice sharing. Here the authority is decentralized. The choices are shown up after counsel with the individuals. He is a participative kind of pioneer, appends more significance to individuals and work. This style of initiative improves the confidence and fulfillment of representatives. It additionally keeps away from clashes in the gathering procedure. The majority rule style now and again makes dormancy and lethargy among individuals and creates soul of non-corporative frequently. Free Rein It is a finished appointment of power to the subordinates, with the goal that they should design, inspire and control and in any case be liable for their own activity. The free rein style pioneer keeps away from power and surrenders the authority position. All the more explicitly the pioneer may need fearlessness, dread or disappointment and so on. The primary issue in this specific style of administration is that it will in general grant different units of an association to continue. When working in a gathering on the off chance that they function as a group, on the off chance that the group itself extremely viable, at that point this free rein style may effective, as they can work with no sort of impedance. Appealling This kind of the board is increasingly prevailing and maybe a total of other administration styles. This style creates solid eagerness and might have as its targets. The advancement of a typical vision esteemed shared by hierarchical individuals. The revelation or formation of significant worth related chances and exercises inside the system of the strategic objectives of the association and the development in individuals from quality and more noteworthy control of their own fates, both exclusively and aggregately. Situational This administration style which changes their style contingent upon the individual or the gathering they are working with and on the circumstance. Situational style is significant on the grounds that individuals and errands must be taken care of in an unexpected way, contingent upon the circumstance and their degree of improvement. There are many key traits of good initiative, for example, being imaginative, pioneering and visionary. Pioneers should be brave, striking and willing to unequivocal. Among different credits is the capacity to think deliberately, recognize the 10,000 foot view and have fall back plans. Probably the most significant or key characteristics of the pioneer are to move and persuade, be submitted and energize those around with strengthening. Great clear interchanges, verbally and by non-verbal communication are natural characteristics of good initiative. Viable pioneer must clarify unmistakably what they need, what they wish to accomplish and how. The capacity to cause ones individuals to feel significant and feel that what they do have incredible worth are extraordinary temperances of good administration. Solid, positive initiative can't be accomplished without acceptable groups. A decent pioneer must be able to pick the correct individuals and giving instructing/preparing and guarantee that they carryout assignments that they can do best. In the event that we consider about the initiative in accommodation industry with connection with this specific examination, the requirement for top notch pioneers in the cordiality business has been readily perceived and is viewed as huge to the drawn out security of the business. As of late, the industry has experienced something of an ocean change in its sexual orientation creation, with expanding quantities of females moving on from friendliness and the travel industry organization courses. This recommends the sex arrangement of administrative position is conceivable to adjust in the medium term, with concurrent changes in the regular initiative style esteemed in the business. Inspiration Inspiration is an internal drive to carry on or act in a specific way. These internal conditions, for example, wishes, wants, objectives, actuate to move a specific way in conduct. It implies it is an internal perspective, which channels or coordinates conduct towards the accomplishment of pre-decided objectives. So this part is essentially considering about this of study. In the event that we take chain of command of necessities hypothesis by Abram Maslow, he proposed that requirements exists at various levels, from essential physiological needs as appetite, and afterward wellbeing needs like safe house, after word social needs like love and friendly and afterward regard needs like acknowledgment lastly confidence like force. While accomplishing fundamental needs of worker which is the physiological needs, the impact of remunerations are less on the grounds that in this stage compensation is the most significant thing for physiological and wellbeing needs. Be that as it may, with regards to the regard and social needs the impact of remunerations and acknowledgments are high. Prize can be an honor which gives at a phase, or it tends to be a tea with CEO or it very well may be a 1000 $ check for a representative which gives for and accomplishment. Be that as it may, again with regards to the self completion stage the need individuals need more force as he has just achieved different phases of requirements in Maslow hypothesis. What's more, again in the event that we take another persuasive hypothesis which is the two factor hypothesis by Fredrick Herzberg, he took the view at two levels, physical level and mental level. In like manner satisfiers are called as sparks and disappoints are called as cleanliness factors. Likewise persuasive variables of a worker in an association can be distinguished as accomplishment, acknowledgment, duty, self-improvement and for certain representatives work itself an inspiration. Also, simultaneously Hygiene elements can be distinguished as working conditions, organization arrangements organization, pay, different advantages professional stability, relational connections, and nature of oversight. Another hypothesis of inspiration is the anticipation hypothesis which says that a representative will be spurred to apply to significant level of exertion when the person accepts that exertion will prompt a decent perfor

Sometimes you just gotta relax

Sometimes you just gotta relax The week of Monday, 10/2 â€" Friday, 10/6 was very, very difficult. We were both sick, had a super long and challenging 6.00 pset (literally stayed in office hours for 15 hours), a 6.042 pset (wouldn’t have been able to do it had our freaking amazing friend not helped us from 11pm 2am the night before it was due), Danny had a CMS.100 essay, Allan had a Ring Comm Study Break to help plan, and we were assigned 8 â€" we repeat E I G H T â€" animation assignments. So the long weekend Saturday, 10/7 â€" Tuesday, 10/10, could not have come at a better time! While the weekend was FAR better than the week (just by the fact that it was a weekend, and we actually could sleep in… sleep is wonderful), we were still very, very busy. Here’s why (sidenote: left out boring basic human functions like eating, but those did happen, don’t worry!) (sidenote 2: the numbers in parenthesis correspond to notes at the end of the post) : Saturday 10:30am â€" Borderline Exec meeting to plan for our first general body meeting of the semester! (1) 11:30am Had to skip art club because our wonderful grandparents were visiting from New York. They knew we had a bad week so they drove up to help us clean our room (a dumpster at the time), and to bring us homemade soup (we have the best grandparents in the world tbh). Also here is a picture of us and our grandma doing our massive amount of laundry. 4:00pm â€" Allan went to take a picture of the statue in front of the green building to make a test for Borderline while Danny did treasury stuff for clubs (2) 7:00pm â€" Allan prepared Unity files for Borderline (a general one, just to refresh on how unity works, and then one for the statue test) (3) 2:00am â€" glorious sleep Sunday 11:40ish am Woke up 1:00pm Tested Unity files irl to see if they worked (they did!) (4) 2:00pm â€" Did animation homework 9:00pm Emails 12am â€" Started studying for our 6.042 exam 2:00am â€" Glorious sleep Monday 10:30ish am â€" Woke up 11:30am â€" Continued studying for 6.042 and started 6.00 pset 3:30am Meeting 5:00pm 6.042 in our room 6:00pm 6.042 in office hours 7:00pm 6.042 on campus 10:00pm â€" Danny meets with someone for an event-planning thing, while Allan continues 6.042 studying 12:00am â€" Get back to Next House 1:00am â€" Decide we have to give up our spots for apple picking the next day because we still have to study for 6.042 2:00am â€" Somewhat sad sleep (cause we really wanted to go apple picking ?) Tuesday 10:30isham â€" Woke up 11:30isham â€" Studied more for 6.042 4:00pm Went to take a better quality video showing the successful Unity test, but it didn’t work because of weird lighting from the sun at that time. (5) 5:00pm Dinner with friend 6:00pm â€" Reshot video when the lighting wasnt wierd anymore! It worked this time! (6) 7:00pm â€" After a super busy weekend, we finally wound down by relaxing with friends and roasting marshmallows! (we really wanted to take a picture of this, but we forgot. That’s probably a good sign because that means we genuinely experienced a social interaction in the present moment, while not thinking about any work i.e. blog documentation) 9:00pm 6.042 Office hours 11:00pm â€" Recorded footage for a hype video for the Borderline that was shown at our general body meeting! 12:00am Edited video (7) 1:00am Glorious sleep So it may seem like this blog was super random. It probably is. But we just really wanted to get the message across that even if you are really busy, sometimes you really do just have to relax. We were pretty bummed that we didn’t get to go apple picking on Tuesday, because it was going to be scheduled relaxation time. But we still made smores with friends on Tuesday night, and that was honestly a highlight of the weekend! There is a high likelihood that you are a high school senior applying to colleges right now, and we know the deadline for early action is approaching. We just want to let you know that it’s okay to R E L A X. Notes (1) Bordeline is a mural project started last semester. It was created to make the MIT Tunnels more aesthetically pleasing, and to also make them a destination rather than a way to get from A to B. The team also made augmented reality animations and an app. We both painted murals, and made animations. This year, since most of the founding team is busy (or graduated), we joined the exec team (Allan as Animation/AR Chiar, and Danny as Treasurer (but Danny also helps with Animation stuff)). This semester the goal is to add more murals so the tunnel is COMPLETELY filled (no wall space showing), and to add more animations. Borderline is also expanding this semester to out of the tunnels. One of the projects is to make AR animations on MIT landmarks! (this new project is still in super early development, but we will post updates as they come!) (2) The picture Allan took of the Sail Statue to use for the target image of the Unity File (3) Unity test to remind ourselves how unity works lol (also edited and repurposed gif from our last blog!) (4) SAIL TEST WORKED (video is bad quality) (5) Weird lighting that made the test fail (the top right corner of the statue is reflecting light) (6) Good quality video of sail test (7)Borderline Hype Video Post Tagged #6.00 #6.042 #CMS.100 Intro to Media Studies #The Borderline at MIT

Essay about William Shakespeares Relevance Today

William Shakespeares Relevance Today For as long as formal education has existed in Britain it has been a largely standard assumption that teaching the works of William Shakespeare is relevant and necessary. Perhaps the relevance of his writing is taken for granted, perhaps it is necessary to re-examine the role of Shakespeare for the modern audience. There are indeed many people who question the relevance of this 440 year old playwright to a 21st century audience, taking it even as far as perhaps the greatest heresy of all, questioning the necessity of GCSE pupils learning Shakespeare at all. This â€Å"proposed vandalism from the policymakers† (Guardian 09/02/01) is opposed wholesale by supporters†¦show more content†¦Ã¢â‚¬Å"Each play of Shakespeare is the development of a metaphor or group of metaphors. There is a matrix out of which feeling finds words, emotions take shape and voices become characters. That which is referred to most often- in metaphors, images, allusions and statements- is usually f or Shakespeare what is significant† (Rehder 1980 p56) However simply because the theme is, arguably, not reliant on the context or overall setting, and that this theme is relayed by metaphor and not in descriptive prose, is not perhaps justified cause to say that the theme itself will necessarily be relevant; or indeed that the metaphorical vehicle by which it is conveyed will be relevant or appreciable either. For example one of the more central themes of King Lear, as with all the tragedies, is death. Death as a theme can be said to have starkly contrasting meaning and therefore perhaps relevance for a modern audience as compared to a Shakespearean one. Today death is a rare and terrible tragedy of momentous importance in the life of an individual, in 16th century England with its plagues, starvation, infant mortality and state violence; death wasShow MoreRelatedThe Relevance of William Shakespeares Romeo and Juliet Today1095 Words   |  5 PagesThe Relevance of William Shakespeares Romeo and Juliet Today I strongly agree with this statement the reason being, the story of Romeo and Juliet shows arange of emotions and issues that people from any age, gender or background are able to relate to. This is one of many reasons why the story is such a big success in todays culture. Shakespeares story is focused on the two young lovers that cant be together and all the anguish that surrounds them, this is true as it Read MoreWilliam Shakespeare s Macbeth And The Human Condition1292 Words   |  6 PagesWilliam Shakespeare’s plays have been analysed and studied for hundreds of years. 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Theory Theories, Subcultural Theory And Self Control Theory

This time, I am going to focus on these two theories, subcultural theory and self-control theory. The reason why I chose these theories is that I am studying abroad now and I have possibilities that I can be a person who have subcultural aspects and need to do self-control here in US. Anyway, subcultural theory was built by Merton. This theory describe that there are many people who completely adjust their own norms or rules and these things are totally different from the major social group, so they tend to be deviant ( Walsh Hemmens, 2014, p.151). On the other hand, self-control theory was built by Gottfredson and Hirschi. This theory describe that criminal behaviors are related to their lack of self-controlling abilities and such people often be like risk taker, impulsive and active ( Walsh Hemmens, 2014, p.194). Then, I would like to look at these theories one after another. Subcultural theory As I said in the introduction section, this theory focuses on the deviants who have their own norms that are totally different from majorities. According to Cohen, this deviants are often low class people who desire to success to be respected or rewarded ( revisesociology.wordpress.com). However, because of their poor educational environment, lacking of assets, and unstable working conditions, to be successful is really difficult. This condition makes them frustrating to be their status and makes them off fromShow MoreRelatedSubcultural Inequality Theory921 Words   |  4 PagesJewish Swiss who developed theories that represent extensions to the theories of strain, social disorganization, and differential association. He was also a student of Robert Merton and Edwin Southerland. Cohen argues that middle-class children experience strain and status frustration to which they respond to adopting one of three roles: college boy, corner boy, or delinquent boy. 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However, there are instances when particular individuals act contrary to the set standards and violate the cultural norms. Such acts may include acts of crime, theft, defiance, breaking of rules, and truancy just to mention a few. Deviance could thus be viewed as the intentional or accidental violation of theRead MoreAssessing Juvenile Delinquency in Trinidad and Tobago Using Subcultural Theories2274 Words   |  10 PagesAssessing Juvenile Delinquency in Trinidad and Tobago using Subcultural Theories Diane S Lewis University of the West Indies Abstract Devin Mills, a student I privately tutored, was gunned down while walking in Deigo Martin in January 2011, newspaper reports portrayed him as a typical lower-class male who got caught up in the wrong things and believed his murder was gang-related. 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Managing Working Capital Free Essays

string(28) " of credit analysis are: 1\." MANAGING WORKING CAPITAL Cash Budgets and Current Assets Learning Objectives Upon reading this chapter, students should: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Be able to compare and contrast working and fixed capital †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Understand the impact of the operating cycle on the size of investment in accounts receivable and inventories †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Know the differences between the three motives †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Be able to differentiate between float, collection float, and disbursement float †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Know how to appraise a firm’s credit worthiness †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Be able to appraise the effectiveness of a firm’s inventory management policies Chapter Summary A firm can invest in both working capital and fixed capital. Working capital is a firm’s current assets and includes cash, marketable securities, inventory, and accounts receivable. Fixed capital is a firm’s fixed assets and includes plant, equipment and property. We will write a custom essay sample on Managing Working Capital or any similar topic only for you Order Now Firms that cannot obtain short-term financing become candidates for bankruptcy. Management of working capital is particularly important to the entrepreneurial or venture firm because there is such a pull on resources. Two important concepts in managing working capital are the operating cycle and the cash conversion cycle: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The operating cycle measures the time between receiving raw materials and collecting the cash from credit sales posted to accounts receivable †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The cash conversion cycle measures the time it takes to collect money from the company’s customers and use those funds to pay its suppliers Calculating three ratios will reveal the average length of these cycles: 1. Inventory days     Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   =   365 / (Cost of goods sold / Inventories) 2. Accounts receivable period (average collection period) =   Accounts receivable / (Net sales / 365) 3. Average payment period   =   Accounts payable / (Cost of goods sold / 365) The operating cycle is the inventory conversion period plus the average collection period. The cash conversion cycle is the operating cycle minus the average payment period. In order to determine average investment in accounts receivable, multiply net sales per day by the average collection period. With this number, a manager can now estimate what the investment in accounts receivable will be fore ht following year given sales increases and average collection period. In order to determine investment required in inventories, multiply average cost of goods sold per day by inventory conversion period. The required amount of accounts payable can be found by multiplying the cost of goods sold per day by average payment period. Armed with these numbers, a manager can tweak the business practices and use these numbers as metrics for improvement. If savings can be wrung out of the operating cycle and conversion cycle, this means less money will have to be raised in financing. A cash budget details the cash inflows and outflows of a firm over a specific time frame. Small firms may prepare annual or monthly cash budgets while larger firms will forecast cash flows weekly or daily. Most firms have a minimum desired cash balance that depends on the firm’s ability to acquire financing on short notice, management preferences, and the predictability of cash inflows and outflows. Estimates of cash inflows are driven by two main factors: 1. Sales forecast (may exhibit seasonality) 2. Customer payment patterns Cash outflows will go to suppliers, payroll, taxes, operating expenses, and purchases of plant and equipment. In order to construct the cash budget, list all expected cash inflows and then all expected cash outflows for the particular period, generating a net cash flow amount. As a general rule of thumb, the average firm has 1/3 or more of its assets in the form of current assets (cash, accounts receivable and inventory). Seasonal production and forecasting can lead to idle plant capacity and laid-off workers during the off-season. Under a level production plan, the same amount of raw material is purchased and the same amount of finished product is manufactured every month. There are three types of motives for holding cash: 1. The transactions motives are demands for holding cash – cash is needed to conduct day-to-day operations 2. Precautionary motives are demands that may be caused by unpredictable events, such as delays in production or in the collection of receivables; marketable securities are held in such a contingency 3. Speculative motives are demands for funds to take advantage of unusual cash discounts for needed materials Cash and marketable securities include: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Cash itself †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   U. S. Treasury bills   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Commercial paper – short-term, unsecured notes of well-known business firms †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Negotiable certificates of deposit – a receipt issued by a bank in exchange for a deposit of funds †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Bankers’ acceptances – primarily used to finance exports and imports †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Eurodollars – deposits placed in foreign banks that remain denominated in U. S. dollars There are several reasons why U. S. banks have entered the Eurodollar market through overseas branches: 1. To finance business activity abroad 2. To switch Eurodollars into other currencies 3. To lend to other Eurodollar banks In general, managers try to speed up cash collections while slowing down the payment process. The float is the time between sending out payments and having them actually be charged to the bank account. The collection float is the time between when a payer sends payment and funds are credited to the payee’s bank account. The disbursement float is the time between when a payer sends payment and when the funds are deducted from the payer’s bank account. Float has three components: 1. Delivery or transmission float – the delay in transferring the means of payment from the payer (customer) to the payee (provider of goods/services) 2. Processing float – once payment reaches the destination, it needs to be entered and processed 3. Clearing float – delay in transferring funds because of the banking system itself In order to speed up the process: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Preauthorized checks are regular (typically monthly) deductions by a vendor from a customer’s checking account. †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Under the Check 21 law, enacted in 2004, payee banks can present electronic or digital images of checks to payer banks rather than having to physically deliver the paper checks for payment. In order to facilitate sales, firms often offer the customers credit for purchases; this process calls in credit analysis. The five Cs of credit analysis are: 1. You read "Managing Working Capital" in category "Essay examples" Character – ethical quality of the applicant and the history of paying bills on time (credit checks) 2. Capacity – the ability to pay bills (liquidity ratios) 3. Capital – adequacy of owners’ equity relative to existing liabilities 4. Collateral – whether assets are available to provide security 5. Conditions – current economic climate and state of the business cycle Credit bureaus obtain credit information about business firms and individuals; two such organizations are Experian and Equifax. Dun Bradstreet reports contain information assembled through many channels and is one of the best sources of information on privately-held companies; reports are typically divided into five sections:   (1) rating and summary; (2) trade payments; (3) financial information; (4) operation and location; and (5) history. Trade credit is extended on purchases to a firm’s customers. Sometimes, customers are given a discount if they pay early. The financial manager must be careful not to impose onerous credit terms that will alienate customers and lower sales. With respect to global credit, the concern is forex. There are two ways to handle the issue: 1. Invoice customers in the firm’s home currency 2. Hedge the forex risk Inventory management: †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The just-in-time (JIT) inventory control system is a system where there are enough materials in inventory to cover needs for a short time, but not more inventory than is needed for short-term needs. Vendor and manufacturer work together to reduce lead time, setup time, and production time so that inventory shows up â€Å"just in time†Ã‚   †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   JIT II further integrates the activity of vendor and purchaser, wherein the position of buyer’s purchasers or materials planners is eliminated and replaced by a representative of the supplier †¢Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Tracking inventory also allows firms to reduce the inventory conversion period and the cash conversion cycle. RFID (radio frequency identification) tags send out a radio signal to electronic readers that allow companies to know the location of inventory at any time Inventory management can result in reduced cost of warehousing and handling inventory. Cost savings and smaller asset bases should lead to higher return on assets and increasing shareholder wealth. Technology is improving asset management by making information available with which managers make business decisions in a real-time setting. Technology may be the key to reducing procurement and supply chain costs. Portals are specialized and secure Web sites through which clients can access order and account information. Key Terms Capacity  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The ability to pay bills and often involves an examination of liquidity ratios. Capital  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The adequacy of owners’ equity relative to existing liabilities as the underlying support for creditworthiness. Cash budget  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The cash inflows and cash outflows of a firm over a specific time frame. Cash conversion cycle  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The time it takes to collect money from the company’s customers and use those funds to pay its suppliers. Character  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The ethical quality of the applicant and his/her willingness to pay bills on time and is best judged by reviewing the past credit history for the company or person. Collateral  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Assets that secure credit. Collection float  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The time between when a payer sends payment and the   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   funds are credited to the payee’s bank account. Conditions  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The current economic climate and state of the business cycle. They are an important consideration in assessing whether the applicant can meet credit obligations. Credit bureaus  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Firms that obtain credit information about   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   business firms and individuals. Disbursement float  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The time between when a payer sends payment and when the funds are deducted from the payer’s bank account. Fixed capital  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   A firm’s fixed assets, which include plant, equipment, and property. Float  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The time between sending out payments and having them actually be charged to the bank account. Level production plan  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Schedule where the same amount of raw material is purchased and the same amount of finished product is manufactured every month. Operating cycle  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The time between receiving raw materials and collecting the cash from credit sales posted to accounts receivables. Portals  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Specialized and secure web sites through which clients can access order and account information. Pre-authorized checks  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Regular (typically monthly) deductions by a vendor from a customer’s checking account. Precautionary motives  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Demands for funds that may be caused by   unpredictable events, such as delays in production   or in the collection of receivables. Speculative motives  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Demands for funds to take advantage of unusual cash discounts for needed materials. Trade credit  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Credit that is extended on purchases to a firm’s customers. Transactions motives  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Demands for holding cash is that cash is needed to conduct day-to-day operations. Working capital  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   A firm’s current assets as shown on the balance sheet and includes cash in the bank accounts, marketable securities, inventory, and accounts receivable. Suggestions for Additional Resources 1. http://en. wikipedia. org/wiki/Just_In_Time_%28business%29 2. http://www. lean. org/ 3. http://www. equifax. com/ 4. http://www. experian. com/ 5. http://www. investopedia. com/terms/c/creditbureau. asp 6. http://en. wikipedia. org/wiki/Credit_bureau 7. http://www. investopedia. com/terms/w/workingcapital. asp 8. http://en. wikipedia. org/wiki/Working_capital Answers to Summary Questions 2. Fixed capital would be defined as the firm’s fixed assets, which include plant, equipment and property. True or false? True. .   3. The operating cycle measures the time it takes between ordering materials and collecting cash from receivables. True or false? True. .   4. If a firm has $50,000 in profit and pays out about one half to the owners of the company, the amount of profit retained in the firm would show up as: (a) an increase in owners’ equity (b) a decrease in owners’ equity (c) a decrease in retained earnings (d) a decrease in long-term debt .   5. The accounts payable period is the time between a firm’s paying its suppliers for inventory and collecting cash from inventories. True or false? False. .   6. Increases in the cash conversion cycle will lower the firm’s short-term financing needs. True or false? False. .   7. The inventory conversion period is calculated by inventory divided by costs of goods sold. True or false? False. .   8. Activities that decrease the cash conversion cycle will increase the firm’s need to obtain financing. True or false? False. .   9. More efficient management of working capital assets will lessen the firm’s needs for financing. True or false? True. . 10. A cash budget is a tool the treasurer uses to forecast future cash flows and estimate future short-term borrowing needs. True or false? True. . 11. To construct a cash budget, two sets of information are needed: estimated cash inflows and estimated cash outflows. True or false? True. . 12. The estimated cash inflows are affected by the sales forecast and customer payment patterns. True or false? True. . 13. Assume a firm’s production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the short-term operating cycle be? (a) 110 days (b) 130 days (c) 190 days (d) 270 days . 14. If a firm has net sales of $400,000, annual cost of goods sold of $315,000, an inventory turnover of 4. 5 times a year, and an accounts receivable turnover of five times a year, the combined investment in inventories and accounts receivable would be: (a) $64,500 (b) $92,000 (c) $122,500 (d) $150,000 . 15. Calculation of a firm’s average collection period is the same as calculating the: (a) accounts receivable cycle (b) inventory cycle c) accounts payable cycle (d) short-term operating cycle . 17. A level production plan has problems, such as idle plant and laid-off workers during slow sales months and production bottlenecks during busy times. True or false? False. . 18. The account receivable period may be calculated as accounts receivable divided by sales. True or false? False. . 19. The account receivable period may be calculated as accounts receivable divided by daily sales. True or false? True. . 20. The transactions motive is the demand for holding cash. True or false? True. . 22. The federal funds rate is normally several points lower than the Treasury Bill rate. True or false? False. . 23. The five C’s of credit analysis is a popular concept used by inventory managers. True or false? False. . 24. A mercantile credit bureau serves primarily as a (n): (a) collection agency for delinquent accounts (b) common meeting place where credit managers may exchange information (c) organization through which accounts receivable may be sold to other businesses (d) central record-keeping organization for credit information on business firms . 25. The objective of just-in-time (JIT) inventory control is to carry a minimum level of inventories. True or false? True. . 26. The delivery or transmission float is the delay in transferring the means of payment from the payer (customer) to the payee (the provider of goods or services). True or false? True. . 27. The disbursement float is the delay in transferring the means of payment from the payer (customer) to the payee (the provider of goods or services). True or false? False. Answers to â€Å"Review Questions† .   1. What is meant by working capital? Net working capital is defined as current assets minus current liabilities. .   2. Briefly describe a manufacturing firm’s operating cycle. The operating cycle measures the time between receiving materials and collecting cash from receivables. Raw materials are purchased and products are manufactured from them to become finished goods. Effort then is made to sell the finished goods. If the goods are sold on credit, then the receivables must be collected. .   3. Explain how the cash conversion cycle differs from the operating cycle. The cash conversion cycle typically is shorter than the operating cycle. The cash conversion cycle measures the time between when a firm pays for its supplies or raw materials and when it collects cash from receivables.    4. Describe how the length of the cash conversion cycle is determined. It is equal to the operating cycle (inventory period minus the accounts receivable period) minus the payables period. .   5. Explain how the length of the operating cycle affects the amount of funds invested in accounts receivable and inventories. All else being equal, a longer (shorter) inventory p eriod and receivables period will increase (decrease) the amount of inventory and accounts receivable carried by the firm. .   6. What affects the amount of financing provided by accounts payable as viewed in terms of the cash conversion cycle? The level of the firm’s cost of goods sold and the average payment period affect the amount of financing provided by accounts payable. .   7. What is a cash budget? How does the treasurer use forecasts of cash surpluses and cash deficits? A cash budget lists, period by period, expected cash inflows and outflows. The treasurer can plan ahead to find suitable marketable securities in which to invest excess cash. If cash deficits are forecast, the treasurer can arrange for short-term financing sources. .   8. Three sets of information are needed to construct a cash budget. Explain what they are. The firm’s minimum desired cash balance, forecasted cash inflows, and forecasted cash outflows are needed to construct a cash budget. .   9. Why might firms want to maintain minimum desired cash balances? Firms want to maintain minimum desired cash balance to ensure they can pay bills on time (transactions motive) and to have a cushion, as forecasts of cash flows may differ from actual future cash flows. . 10. What are the sources of cash inflows to a firm over any time frame? The main sources of cash inflows are cash sales and customer payments on credit sales. . 11. What are the sources of cash outflows from a firm over any time frame? The main sources of cash outflows are payments for raw materials, labor and overhead expenses, rent/lease payments, plant and equipment purchases, interest and principal payments, dividend payments, and taxes. . 12. How does the choice of level or seasonal production affect a firm’s cash over the course of a year? Under level production, inventory becomes large before the peak selling season; whatever cash the firm has will probably be borrowed funds as cash is used to pay workers and suppliers over the course of the year as inventories are building. Under seasonal production, there is still a build-up of inventories prior to the selling season but probably less than under level production, as inventory can be sold shortly after it is made. Cash is conserved for much of the year; materials and labor expenses are less during the off-peak times when production is low. . 13. Describe what happens to a firm’s current asset accounts if the firm has seasonal sales and they use (a) level production; (b) seasonal production. a. Under a level production plan, the same amount of raw materials are purchased and the same amount of finished product is manufactured every month. Inventory builds up in anticipation of higher seasonal sales while cash and accounts receivable are quite low. When the selling season begins, inventories fall and receivables rise. After a time, inventories are nearly exhausted, and the firm is collecting cash from its customers. The changing composition of current assets for a firm with a seasonal sales pattern is illustrated in Figure 15. 4. b. Under seasonal production, raw material purchases will rise or fall in anticipation of higher or lower sales. Such a strategy can help minimize the effect of seasonal sales on inventory; goods are manufactured shortly before sale. Receivables will rise during the peak selling season but will fall thereafter as cash is collected. . 14. Describe the three motives or reasons for holding cash. a. need for day-to-day bill-paying? Transactions motive: b. hold funds to meet unexpected needs—a safety level of? Precautionary motive: cash hold funds? c. Speculative motive: to take advantage of attractive input prices or discounts 15. What characteristics should an investment have to qualify as an acceptable marketable security? Marketable securities must be highly liquid (easily converted into cash at a price close to fair market value) with little chance of price risk or default risk. . 16. Identify and briefly describe several financial instruments used as marketable securities. Marketable securities that can be used as a means to â€Å"park† the firm’s excess cash include a. short-term securities issued and backed by the U. S.? U. S. Treasury Bills: government b. a bank’s temporary excess reserves that are lent to other banks? Federal Funds: on a day-to-day basis c. short-term unsecured notes of large financially stable? Commercial Paper: firms . large dollar CDs ($100,000 or more) for? Negotiable Certificates of Deposit: which a secondary market has evolved e. business paper used to finance international trade, backed? Bankers’ Acceptances: (accepted) by a bank with a high quality rating f. deposits placed in foreign banks that remain denominated in U. S.? Eurodollars: dollar s (so there is no currency risk) . 17. What is float? Why is it important to cash management? Float is the delay between when funds are sent by a payer to a payee. Collection float is the time between when a payer sends payment and the funds are credited to the payee’s bank account. Disbursement float is the time lag between when a payer sends payment and when the funds are deducted from the payer’s bank account. It is important to cash management as the firm will have larger cash balances to invest and to reduce its own financing needs, all else being equal, the shorter the collection float and the larger the disbursement float. . 18. What are the three components of float? Which are under the control of the firm seeking to reduce collection float? The three components of float are delivery (or transmission) float, processing float, and clearing float. Delivery float and processing float are most directly under the control of the firm. Clearing float is controlled mainly by the banking system’s check-clearing process but the firm can try to reduce it (and delivery float) by using lockboxes that are geographically closer to customers then the firm’s main office. . 19. What are some strategies a firm can use to speed up its collections by reducing float? Using a lockbox, incoming receipts are placed in a Post Office box which can be emptied several times a day by bank personnel, who process the payments and deposit the incoming funds into the firm’s accounts. This reduces mail delivery delay and processing delay, as the bank processes the payments rather than the firm. A second popular method, best used for regular payments such as utility, cable bills, or insurance premiums, is the use of preauthorized checks that allow the firm to deduct funds from the payer’s bank account. . 20 How can processing float be reduced? Vendors reduce processing float by improving the process of receiving payments and depositing them. Large incoming payments (say, over $1 million) are automatically flagged and deposited expeditiously. Electronic check images and electronic payments (rather than the use of paper checks) remove the human component and thus can reduce processing delays. Lockboxes and preauthorized checks reduce processing delays, as processing is handled by banks, speeding deposit of incoming receipts. .. 21. How can a firm use float to slow down its disbursements? A firm can increase mail float by mailing payments from out-of-the-way locations, but that may hurt its reputation with suppliers who can direct the firm to send payments to another, closer, lockbox location. Another means are to use disbursement banks that are located around the country to increase disbursement float via the check-clearing process. So excess (and noninterest bearing) funds are not kept in a disbursement account, a firm can arrange to use a zero balance account for its disbursements. A bank will transfer sufficient funds every day into the ZBA to cover the day’s presented checks; other funds can remain invested in marketable securities. . 22. Why can’t a firm that wants to increase disbursement float simply make payments after the stated due date? There is an ethical issue with paying invoices late. If a vendor has provided needed goods and services the customer should pay for them in a timely and appropriate manner. Paying late can lead to negative notations on credit reports. Credit availability to late payers can be discontinued if the vendor’s credit standards are tightened. . 23. What is credit analysis? Identify the five C’s of credit analysis. Credit analysis involves appraising the creditworthiness or quality of a potential credit customer. Credit analysis includes examining the 5 C’s of credit. a. illingness to repay debts? Character: b. ability to repay debts (liquidity)? Capacity: c. equity cushion? Capital: d. what assets can provide security for the credit? Collateral: e. the state of the business cycle and its expected movement during the? Conditions: credit period . 24. Describe various credit-reporting agencies that provide information on business credit applicants. Credit bureaus provide f irms with information about a firm’s financial condition and its record on paying its past debts. Local credit bureaus service community credit information needs. The National Credit Interchange System facilitates exchange of information between bureaus. The National Association of Credit Management established the Foreign Credit Interchange Bureau to service firms with overseas customers. Dun Bradstreet is perhaps the best-known private firm supplying credit information. . 25. How can a firm control the risk of changing exchange rates when billing an overseas customer? First, a firm can invoice the overseas customer in the firm’s home currency; this transfers the risk of changing exchange rates to the customer. Second, if the customer may pay in their own currency, the supplier can use currency futures or options contracts to hedge or reduce the risk of changing exchange rates. . 26. What risks arise when a firm lowers its credit standards to try to increase sales volume? Marginal and poor-risk customers may purchase the firm’s goods/services on credit. If they are unable to make payment, the firm must revise its sales figures and faces the added expense of trying to recover the goods and whatever funds it can from the delinquent customer. . 27. How do credit terms and collection efforts affect the investment in accounts receivable? All else being equal, lax credit terms increase the investment in accounts receivable and increase the chance for larger bad debts. Stricter credit terms will likely reduce receivables balances, but at the cost of possibly losing sales to competitors with easier standards. Collection efforts are aimed at having customers with overdue accounts pay their bills. Thus, successful collection efforts can reduce receivable balances and bad debt expense. On the other hand, collection efforts that offend customers can lead to lost future business. 28. How is the financial manager involved in the management of inventories? Inventory management concerns the financial manager because inventory, like all other assets, must be financed. Overly large inventories use warehouse space and have larger financing costs and insurance costs. Smaller inventories run the risk of selling out and causing customer dissatisfaction. Answers to â€Å"Applying this Chapter† Questions 2. The Robinson Company has the following current assets and current liabilities for these two years: 2004   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   2005 Cash and marketable securities |$50,000 |$50,000 | |Accounts receivable |300,000 |350,000 | |Inventories |350,000 |500,000 | |Total current assets |$700,000 |$900,000 | |Accounts payable |$200,000 |$250,000 | |Bank loan |0 |150,000 | |Accruals |150,000 |200,000 | |Total current liabilities |$350,000 |$600,000 | |   |   |   | If sales in 2004 were $1. 2 million and sales in 2005 were $1. 3 million, and cost of goods sold was 70 percent of sales, how long were Robinson’s operating cycles and cash conversion cycles in each of these years? What caused them to change during this time? AR period = $350,000/($1,300,000/365) = 98. 27 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $300,000/($1,200,000/365) = 91. 25 days (2004) Inventory period  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $500,000/($910,000/365) = 200. 55 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $350,000/($840,000/365) = 152. 08 days (2004) AP period   = $250,000/($910,000/365 ) = 100. 27 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $200,000/($840,000/365) = 86. 90 days (2004) Operating cycle = AR period + Inventory period = 98. 27 + 200. 55 = 298. 82 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = 91. 25 + 152. 08 = 243. 33 days (2004) Cash conversion cycle = Operating cycle – AP period = 298. 82 – 100. 27 = 198. 5 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = 243. 33 –   86. 90 = 156. 43 days (2004) Both the OC and CCC rose in 2005, primarily because of a large rise (almost 48 days) in the inventory period. 5. The Robinson Company from Problem 2 had net sales of $1,200,000 in 2004 and $1,300,000 in 2005. (a)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Determine the receivables turnover in each year. AR turnover  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = Sales/AR = $1,300,000/$350,000 = 3. 71 (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $1,200,000/$300,000 = 4. 00 (2004) (b)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Calculate the average collection period for each year. Average collection period  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = AR/(Sales/365)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã ‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $350,000/($1,300,000/365) = 98. 7 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $300,000/($1,200,000/365) = 91. 25 days (2004) (c)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Based on the receivables turnover for 2004, estimate the investment in receivables if net sales were $1,300,000 in 2005. How much of a change in the 2005 receivables occurred? Receivables investment  Ã‚  Ã‚  Ã‚  Ã‚   = Sales per day ? Average collection period   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = ($1,300,000/365) ? 91. 25 days = $325,000 6. Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2004 and $1,200,000 in 2005. (a)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Calculate the invent ory turnover for each year. Comment on your findings. Inventory turnover  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = COGS/Inventory = $1,200,000/$500,000 = 2. 40 (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $1,000,000/$350,000 = 2. 86 (2004) Inventory turnover fell in 2005; inventory rose more quickly than cost of goods sold. (b)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   What would have been the amount of inventories in 2005 if the 2004 turnover ratio had been maintained? Inventories investment  Ã‚  Ã‚  Ã‚  Ã‚   = COGS per day ? Inventory period   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $1,200,000/365 ? (365/2. 86) = $419,580. 42 7. Given Robinson’s 2004 and 2005 financial information presented in problems 2 and 4,   Ã‚  Ã‚  Ã‚   (a)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Compute its operating and cash conversion cycle in each year. R obinson Company |   |   |   |   | |   |2004 |   |2005 |   | |Sales |$1,200,000 |   |$1,300,000 |   | |Cost of Goods sold |$1,000,000 |   |$1,200,000 |   | |profit margin |5. 0% |   |5. 0% |   | |   |   |   |   |   | |Accounts Receivable |$300,000 |   |$350,000 |   | |Inventory |$350,000 | $500,000 |   | |Accounts Payable |$200,000 |   |$250,000 |   | |   |   |   |   |   | |Sales/ day = |$3,287. 67 |   |$3,561. 64 |= $1,300,000/365 | |COGS/day= |$2,739. 73 |   |$3,287. 67 |= $1,200,000/366 | |   |   |   |   |   | |Inventory conversion period = Inventory/COGS per day | |   |127. 75 |days |152. 8 |days | |   |   |   |   |   | |Average collection period = AR/sales per day |   | |   |91. 25 |days |98. 27 |days | |   |   |   |   |   | |Average payment period = AP/COGS per day |   | |   |73. 0 |days |76. 4 |days | |   |   |   |   |   | |Operating cycle = Inventory conversion + co llection periods | |   |219. 00 |days |250. 35 |days | |   |   |   |   |   | |Cash cycle = Inventory conversion + collection period – payment period | |   |146. 00 |days |174. 31 |days | (b)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   What was Robinson’s net investment in working capital each year? |Net investment in working capital = AR + Inventory – AP (as used in his chapter) | |   |2004 |   |2005 |   | |   |=$300,000+$350,000-$200,000 |=$350,000+$500,000-$250,000 | |   |=$450,000 |   |=$600,000 |   | 8. Robinson expects its 2006 sales and cost of goods sold to grow by 5 percent over their 2005 levels. (a)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2005 levels? What will be its net investment in working capital? If the ratios remain the same, a |   |   | |5 |percent increase in sales and COGS will increase AR, | |inventory , and AP proportionately in 2006 |   |   | |AR: $350,000 + 5%= |$367,500 |   |   | |Inv: $500,000 + 5%= |$525,000 |   |   | |AP: $250,000 + 5%= |$262,500 |   |   | |Net investment in working capital = AR + Inventory – AP |   | |=$367,500 + $525,000 – $262,500 = |$630,000 |   | |   |   |   |   | |The new sales will be |$1,300,000 + 5% = |$1,365,000 |   | |Sales/day = |   |$3,739. 3 |   | |The new COGS will be |$1,200,000 + 5% = |$1,260,000 |   | |COGS/day = |   |$3,452. 05 |   | (b)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   What will be the impact on its net investment in working capital in 2006 if Robinson is able to reduce its collection period by five days, its inventory period by six days, and increase its payment period by two days? |The new sales will be |$1,300,000 + 5% = |$1,365,000 | |Sales/day = |   |$3,739. 3 | |The new COGS will be |$1,200,000 + 5% = |$1,260,000 | |COGS/day = |   |$3,452. 05 | |Estimated AR if collection period red uced by |5 |days: | |New AR = sales/day x collection period |   |   | |Sales/ day = |$3,739. 73 |   |   | |Old collection period |98. 27 |   |   | |New collection period |93. 27 |   |   | |New AR estimate= |$348,801. 7 |   |   | |   |   |   |   | |Estimated inventory if conversion period reduced by |6 |days: | |New Inv = COGS/day x conversion period |   |   | |COGS/day |$3,452. 05 |   |   | |Old conversion period |152. 08 |   |   | |New conversion period |146. 08 |   |   | |New Inv estimate= |$504,287. 7 |   |   | |   |   |   |   | |Estimated AP if payment period increased by |2 |days: | |New AP = sales/day x payment period |   |   | |COGS/day |$3,452. 05 |   |   | |Old payment period |76. 04 |   |   | |New payment period |78. 04 |   |   | |New AP estimate= |$269,404. 1 |   |   | |   |   |   |   | |2006 working capital = AR + Inventory – AP |   |   | |=$360,020. 55 + $514,643. 84 â€⠀œ $259,047. 95 |   |   | |=$583,684. 93 |   |   |   | |which is a reduction of |$46,315. 07 |from part a) | 9. Robinson expects its 2006 sales and cost of goods sold to grow by 20 percent over their 2005 levels. (a)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   What will be the affect on its levels of receivables, inventories, and payments if the components of its cash conversion cycle remain at their 2005 levels? What will be its net investment in working capital? If the ratios remain the same, a |   |   | |20 percent increase in sales and COGS will increase AR, | |inventory, and AP proportionately in 2006 |   |   | |AR: $350,000 + 5%= |$420,000 |   |   | |Inv: $500,000 + 5%= |$600,000 |   |   | |AP: $250,000 + 5%= |$300,000 |   |   | |Net investment in working capital = AR + Inventory – AP |   | |=$367,500 + $525,000 – $262,500 = |$720,000 |   | |   |   |   |   | |The new sales will be |$1,300,000 + 20% = |$1,560,000 |   | |Sales/day = |   |$4,273. 97 |   | |The new COGS will be |$1,200,000 + 20% = |$1,440,000 |   | |COGS/day = |   |$3,945. 21 |   | b)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   What will be the impact on its net investment in working capital in 2006 if Robinson is able to reduce its inventory period by ten days? |Estimated AR if collection period reduced by 0 days: | |New AR = sales/day x collection period |   |   | |Sales/ day = |$4,273. 97 |   |   | |Old collection period |98. 27 |   |   | |New collection period |98. 27 |   |   | |New AR estimate= |$420,000. 0 |   |   | |   |   |   |   | |Estimated inventory if conversion period reduced by 10 days: | |New Inv = COGS/day x conversion period |   |   | |COGS/day |$3,945. 21 |   |   | |Old conversion period |152. 08 |   |   | |New conversion period |142. 08 |   |   | |New Inv estimate= |$560,547. 5 |   |   | |   |   |   |   | |Estimated AP if payment period increased by 0 days: | |New AP = sales/day x paym ent period |   |   | |COGS/day |$3,945. 21 |   |   | |Old payment period |76. 04 |   |   | |New payment period |76. 04 |   |   | |New AP estimate= |$300,000. 0 |   |   | |   |   |   |   | |2006 working capital = AR + Inventory – AP |   |   | |=$360,020. 55 + $514,643. 84 – $259,047. 95 |   |   | |$680,547. 95 |   |   |   | |which is a reduction of |$39,452. 05 |from part a) |   | 10. Following are financial statements for the Genatron Manufacturing Corporation for the years 2004 and 2005: Selected Balance Sheet Information 2004   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   2005 Cash |  $ 50,000 |$ 40,000 | |Accounts receivable |200,000 |260,000 | |Inventory |450,000 |500,000 | |Total current assets |$700,000 |$800,000 | |Bank loan, 10% |$ 90,000 |$ 90,000 | |Accounts payable |130,000 |170,000 | |Accruals |50,000 |70,000 | |Total current liabilities |$270,000 |$330,000 | |Long-term debt, 12% |300,000 |400,000 | Selected I ncome Statement Information 2004   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   2005 |Net sales |$1,300,000 |$1,500,000 | |Cost of goods sold |780,000 |900,000 | |Gross profit |$ 520,000 |$ 600,000 | |Net income |$93,000 |$ 114,000 | Calculate Genatron’s operating cycle and cash conversion cycle for 2004 and 2005. Why did they change between these years? Inventory period  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = Inventory/(COGS/365)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $500,000/($900,000/365) = 202. 78 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $450,000/($780,000/365) = 210. 58 days (2004) AR period = AR/(Sales/365) = $260,000/($1,500,000/365) = 63. 27 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $200,000/($1,300,000/365) = 56. 15 days (2004) AP period   = AP/(COGS/365) = $170,000/($900,000/365) = 68. 94 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = $130,000/($780,000/365) = 60. 83 days (2004) Operating cycle   = Inventory period + AR period 202. 78 days + 63. 27 days = 266 . 05 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = 210. 58 days + 56. 15 days = 266. 73 days (2004) Cash conversion cycle = Operating cycle – Average payment period   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = 266. 05 days – 68. 94 days = 197. 11 days (2005)   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   = 266. 73 days – 60. 83 days = 205. 90 days (2004) The operating cycle remained constant in 2004 and 2005 as a reduction in the inventory period was balanced by an increase in the average collection period. The cash conversion cycle sell for 2005 was longer. Genatron took, on average, longer to pay its suppliers. 11. Genatron Manufacturing expects its sales to increase by 10 percent in 2006. Estimate the firm’s investment in accounts receivable, inventory, and accounts payable in 2006. If the inventory, collection, and payment periods remain constant, each account should rise by 10 percent. $260,000 (1. 10) =? Accounts receivable: $286,000 $500,000 (1. 10) = $550,000? Inventory: $170,000 (1. 10) = $187,000? Accounts payable: 12   . With concerns of increased competition, Genatron is planning in case its 2006 sales fall by 5 percent from their 2005 levels. If cost of goods sold and the current asset and liability accounts decrease proportionately, (a) Calculate the 2006 cash conversion cycle.    |   |   |   |   |5% decline | |   |2004 |   |2005 |   |2006 | |Sales |$1,300,000 |   |$1,500,000 |   |$1,425,000 | |Cost of Goods sold |$780,000 |   |$900,000 |   |$855,000 | |profit margin |7. 2% |   |7. 6% |   |   | |Net income |$93,000 |   |$114,000 |   |   | |Accounts Receivable |$200,000 |   |$260,000 |   |$247,000 | Inventory |$450,000 |   |$500,000 |   |$475,000 | |Accounts Payable |$130,000 |   |$170,000 |   |$161,500 | |   |   |   |   |   |   | |Sales/ day = |$3,561. 64 |   |$4,109. 59 |= $1,500,000/365 |$3,904. 11 | |COGS/day= |$2,136. 99 |   |$2,465. 75 |= $900,000/366 |$2,342. 47 | |   |   |   |   |   |   | |Inventory conversion period = Inventory/COGS per day |   | |   |210. 58 |days |202. 78 |   |202. 8 | |   |   |   |   |   |   | |Average collection period = AR/sales per day |   | |   |56. 15 |days |63. 27 |   |63. 27 | |   |   |   |   |   |   | |Average payment period = AP/COGS per day |   | |   |60. 8 |days |68. 94 |   |68. 4 | |   |   |   |   |   |   | |Operating cycle = Inventory conversion + collection periods |   | |   |266. 73 |days |266. 04 |   |266. 04 | |   |   |   |   |   |   | |Cash cycle = Inventor y conversion + collection period – payment period |   | | |205. 90 |days |197. 10 |   |197. 10 | (b) Calculate the 2006 net investment in working capital. Net investment in working capital = AR + Inventory – AP (as used in this chapter) | |2004 |2005 |2006 |   |   | |   |   |=$247,000+$475,000-$161,500 | |$520,000 |$590,000 |=$560,500 |   |   | 13. .In problem 10 we assumed the current asset and liability accounts decrease proportionately with Genatron’s sales. This is probably unrealistic following a decline in sales. What will be the impact on the working capital accounts if its collection period lengthens by five days, its inventory period lengthens by seven days, and its payment period lengthens by three days if Genatron’s sales and COGS fall 5 percent from their 2005 levels? |The new sales will be |$1,500,000 – 5% = |$1,425,000 |   | |   |Sales/day = |$3,904. 11 |   | |The new COGS will be |$900,000 – 5% = |$855,000 |   | |   |COGS/day = |$2,342. 7 |   | |   |   |   |   | |Estimated AR if collection period lengthens by |5 |days: | |New AR = sales/day x collection period |   |   | |Sales/ day = |$3,904. 11 |   |   | |Old collection period |63. 27 |(from problem 10) |   | |New collection period |68. 27 |   |   | |New AR estimate= |$266,520. 5 |   |   | |   |   |   |   | |Estimated inventory if conversion period lengthens by |7 |days: | |New Inv = COGS/day x conversion period |   |   | |COGS/day |$2,342. 47 |   |   | |Ol d conversion period |202. 78 |   |   | |New conversion period |209. 8 |   |   | |New Inv estimate= |$491,397. 26 |   |   | |   |   |   |   | |Estimated AP if payment period increased by |3 |day: | |New AP = sales/day x payment period |   |   | |COGS/day |$2,342. 47 |   |   | |Old payment period |68. 4 |   |   | |New payment period |71. 94 |   |   | |New AP estimate= |$168,527. 40 |   |   | |   |   |   |   | |2006 working capital = AR + Inventory – AP |   |   | |=$266,520. 55 + $491,397. 26 – $168,527. 40 |   |   | |=$589,390. 1 |   |   |   | |which is an increase of |$28,890. 41 |from problem 10. |   | 14. .Suppose Global Manufacturing is planning to change its credit policies next year. It anticipates that 10 percent of each month’s sales will be for cash; two thirds of each month’s receivables will be collected in the following month, and one-third will be collected two months followin g their sale. Assuming the Global’s sales forecast in Table 10. 5 remains the same and the expected cash outflows in Table 10. 6 remain the same, determine Global’s revised cash budget. Nov. Dec. Jan. Feb. Mar. Apr. Sales  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   $80,000  Ã‚   $100,000  Ã‚  Ã‚  Ã‚   $ 30,000  Ã‚   $   40,000  Ã‚  Ã‚  Ã‚   $ 50,000  Ã‚  Ã‚  Ã‚   $ 60,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Cash (10%)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   3,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   4,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   5,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   6,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   1 Month Later (2/3)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   60,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   18,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   24,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   30,000 [pic][pic][pic][pic]  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   2 Months Later (1 /3)  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   24,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   30,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   9,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   12,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Total Cash Receipts  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   $ 87,000  Ã‚   $   52,000  Ã‚  Ã‚  Ã‚   $ 38,000  Ã‚  Ã‚  Ã‚   $ 48,000 [pic][pic][pic][pic]  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Less: Total Cash Payments  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   60,000  Ã‚  Ã‚  Ã‚   127,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   44,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   40,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Net Cash Flow  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   $ 27,000  Ã‚   $ –75,000  Ã‚  Ã‚  Ã‚   $ –6,000  Ã‚  Ã‚  Ã‚   $   8,000 [pic][pic][pic][pic]  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Beginning Cash Balance  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   25,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   52,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   25,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   25,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Cumulative Cash Balance  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   $ 52,000  Ã‚   $ –23,000  Ã‚  Ã‚  Ã‚   $ 19,000  Ã‚  Ã‚  Ã‚   $ 33,000 Monthly Loan  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚     Ã‚  Ã‚  Ã‚  Ã‚  Ã‚      (or repayment) 0  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   48,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   6,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   –8,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Cumulative Loan Balance  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚     Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   0  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   48,000  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   54,000  Ã‚  Ã‚  Ã‚      46,000   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Ending Cash Balance  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   How to cite Managing Working Capital, Essay examples

What is the offering concept free essay sample

An offering consists of the benefits or satisfaction provided to target markets by an organization. It consists of a tangible product or service (a physical entity) plus related services (delivery and setup), brand name(s), warranties or guarantees, and packaging. Focusing on the term offering rather than just the product or service forces the marketer to go beyond the single tangible entity being marketed and to consider the entire offering, or extended product or service. When the focus is on the benefits and satisfaction offered it establishes a conceptual framework. Marketers can then potentially use this framework to analyze competing offerings, identify the unmet needs and wants of target markets, and develop or design new products or services. Offerings illustrate not only the buyer needs served, but they are also the types of customer groups sought and the means for satisfying their needs. Dr. Pepper/Seven Up are consistently ranked among the top-ten soft drink brands in the United States as measured by market share. We will write a custom essay sample on What is the offering concept? or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Their biggest competitors are Coca-Cola and Pepsi-Cola. Within the citrus-flavored soft drink category Squirt competes with; Coca-Colas Mello Yello and Surge, Pepsi-Colas Mountain Dew, and Sundrop marketed by Dr. Pepper/Seven Up. The Squirt Brand, a product of Dr. Pepper/Seven Up, Inc. , has had a recent dip in case sales volume. Some potential causes of this dip could come from a growing Hispanic community in markets where Squirt was popular. This issue means that Dr. Pepper/Seven Up, Inc. , should review their current offering and determine what the unmet needs or wants are of the target market. In this case, the research has shown that a potential problem could lie in the recent growth of the Hispanic community and maybe the advertisement of the Squirt Brand is not reaching this market. Once the unmet needs or wants are identified the organization will need to develop a plan to get the awareness of the brand out there and show the target market how the Squirt Brand will benefit the consumer. This not only includes the packing and distribution but, the Squirt brand management team should find a way to create an emotional link through advertisement. This emotional link could be met by reminding the target market of Hispanics from Mexico about Squirt. Research had shown that Squirt was already available in Mexico, but not through Dr. Pepper/Seven Up. This link however, could possibly leverage the popularity of the Squirt Brand in the United States if the advertisement of the offering is out there and visible to the target market. All of these factors must be consider with the offering concepts for Dr. Pepper/Seven Up, Inc. , especially concerning the Squirt brand. The changing demographics of the United States means the wants and needs that were previously being met will need to be updated to ensure the largest target markets wants and needs are met which will benefit the organization by increasing Squirt case sales volume. These unmet wants and needs could affect everything from advertising to distribution to the packaging of the product. Bottom of Form 2. How would you characterize the competitive situation for Dr. Pepper/7up, Inc. and Squirt in the U. S. carbonated soft drink industry? In 2000, Americans consumed 53 gallons of soft drinks per person, compared with about 47 gallons in 1990. This increase came from population growth compounded by rising per capita consumption. The increase produced an estimated $60. 3 billion in carbonated soft drink retail sales in 2000. Within the soft drink industry in the United states there are three major participants. They are concentrate producers, bottlers, and retail outlets. Concentrate producers manufacture the basic flavors for sale to bottlers, which add a sweetener to carbonated water and package the beverage in bottle and cans, which are then sold to retailers. The three major concentrate producers in the United States are; The Coca-Cola Company, The Pepsi-Cola Company, and Dr. Pepper/Seven Up, Inc. The bottlers are able to meet the target more locally whereas the concentrate producers tend to focus more on the brand as a whole or nationwide. These advertising and promotion programs can however, be negotiated (R. Kerin amp; R. Peterson, 2010). Reference: Kerin Roger A. , Peterson Robert A. , (2010) Strategic Marketing Problems, Twelfth Edition. Upper Saddle River, NJ: Pearson Education, Inc. Bottom of Form 3. What are the possible new offering decisions for Squirt Brand? The Squirt Brand was presented with new offering decisions dealing with Squirt Brand. Cadbury Schweppes PLC acquired the brand in 1994 and addressed Squirts positioning with Foot, Cone, amp; Belding (FCB). They all agreed that Squirts unique thirst-quenching attribute should be the dominant dimension upon which to build the brand. When Cadbury Schweppes PLC acquired Dr. Pepper/Seven Up, in 1995, they asked FCB to revise its creative strategy. Squirt did a revision to focus on every day, on-the-go experiences. In 2000, Coca-Cola introduced Citra and again Squirts positioning and creative execution was revisited but, no changes were made. After a consumer research in 2001, Squirts brand management team requested the formal positioning. However, prior to deciding on a new offering the marketers must consider and monitor target markets and the offerings to determine when the new offerings should be introduced and if existing offerings should be modified or eliminated. When considering new offerings, three questions need to be answered. First, how consistent is the new offering with existing offerings? Second, does the organization have the resources to introduce and sustain the offering? Third, is there a viable market for the offering? The new offerings presented by FCB included refining Squirts target market and positioning. FCB recommended that Squirt target multicultural, 18- to 24-year-olds who were in that transition stage into adulthood but, still want to make the most out of life, work hard, and play even harder. They presented the following formal positioning statement: For young multicultural adults who thrive on the excitement and spontaneity of living up to the max, Squirt citrus soda fuels your thirst for living life loud, with an exhilarating taste thats powerfully thirst-quenching. This statement continued to emphasize Squirts thirst-quenching benefit but, changed the target market due to the large and growing Hispanic population in the U. S. Kate Cox, the brand manager at Dr. Pepper/Seven Up, Inc. , reviewed the information provided by FCB and asked Jaxie Stollenwerck, the associate brand manager, to prepare a profile of Hispanic and African American consumers in the U. S. Upon the completion of Jaxies research, Kate assembled the Squirt brand management team to discuss and to begin drafting the annual advertising and promotion plan for Squirt. She emphasized that her strategic intent was to lay a solid foundation for Squirts future growth with the current years advertising and promotion plan. Since, FCB focused on market targeting and positioning she wanted to present the possible offerings first. After all the research she concluded there were three general options that existed. First, they could stay with the present market targeting and positioning strategy. Second, they could proceed with the market targeting and positioning strategy recommendation made by FCB. Third, they could develop another market targeting and positioning strategy, which might or might not include elements of the current and recommended strategy. She wanted to ensure the brand management team considered what role the multicultural market for carbonated soft drinks, the grapefruit/citrus category, and Squirt played in formulating a market targeting and positions strategy and implementing the advertising and promotion plan for all the possible offerings decisions. Also, when focusing on the offerings a few other options and/or variables needed to be considered. First, how will a multicultural marketing mind-set guide the overall planning process itself. Second, if they choose to focus on multicultural 18- to 24-year-olds, what might they need to do differently than if they simply focused on 18- to 24-year-olds in general or even stay with their current target 18- to 34-year-olds (R. Kerin amp; R. Peterson, 2010). Reference: Kerin Roger A. , Peterson Robert A. , (2010) Strategic Marketing Problems, Twelfth Edition. Upper Saddle River, NJ: Pearson Education, Inc. Bottom of Form 4. Given your assessment of the competitive situation, what are the pros and cons of: (a) continuing Squirts present market targeting and positioning approach and (b) adopting the recommendations made by Foote, Cone amp; Belding? The competitive situation for Dr. Pepper/Seven Up, Inc. , places them as third when it comes to carbonated soft drinks. They only have two carbonated soft drink brands in the top-ten brands which does not include the Squirt Brand. Squirt competes with Coca-Colas Mello Yello and Pepsi-Colas Mountain Dew in the citrus-flavored soft drink category. When it comes to carbonated grapefruit soft drinks the Squirt Brand ranks the highest. If Squirt continues with its present market targeting and positioning approach their total case sales volume will continue to decrease. This could be based on the significant change in the target market over the past few years and the expected continuance of change that is projected to occur. The change is due to an increase of the Hispanic demographic group that Squirt may not be currently marketing to through advertisements and promotions. However, they do have loyalty to the consumers that are purchasing Squirt over other carbonated soft drinks. This consumer base though is not producing the case sales volume that Squirt needs to be competitive with other soft drink brands that are in the citrus-flavored market such as, Coca-Cola who produces Mello Yello and Pepsi-Cola who produces Mountain Dew. In 1999, Squirts case sales volume was 56 million with a decrease to 54. 6 million in 2000. Compared to Mountain Dews case sales volume increase of 16. 8 cases from 1999 to 2000. These statistics show that the pros to continuing to use the current approach and positioning do not outweigh the cons and therefore, Squirt needs to consider some other approaches to remain competitive in this market. However, the pros also do not outweigh the cons of the recommendation by Foote, Cone amp; Belding (FCB). If Squirt adopts the recommendation made by FCB in its entirety they are faced with losing their current customer base or even potentially constricting Squirts target market by focusing only on a particular group of people. A pro of this recommendation however, is that it does capture the growing demographic segment of the United States. This demographic segment is only expected to continue to grow and if the new approach and positioning is successful there is a potential for a dramatic increase in case sales volume over the next few years. This does however, present the problem of limiting the target market and possibly requiring another formal positioning review to be conducted in the near future to determine if repositioning is required. Repositioning is needed when a product, service, brand or organization is no longer competitively sustainable or profitable. This takes time and money and considering that Squirt is roughly ninth in the company brand portfolio the Squirt brand management team needs to ensure they take the correct approach and position with their product. The best approach for Squirt would to keep eliminates of each position that would benefit the Squirt brand and combine them to effectively meet all target market needs and wants. Maintaining a commitment to an already loyal customer base but, also equally romoting the brand to a new target market to increase the consumer knowledge of the brands benefits and satisfaction successfully meet the goals of the Squirt brand management team, as well as, the Dr. Pepper/Seven Up, Inc. , as a whole (R. Kerin amp; R. Peterson, 2010). Reference: Kerin Roger A. , Peterson Robert A. , (2010) Strategic Marketing Problems, Twelfth Edition. Upper Saddle River, NJ: Pearson Education, Inc. Bottom of Form 5. Might another market targeting and positioning approach be developed? If so, what would this approach look like, and why would it be preferable? Another market targeting and position approach for Squirt to take would be to combine the current and the recommended strategy of Foot, Cone amp; Belding (FCB). This would be a preferable approach because instead of focusing on the Hispanic group and decreasing the age segment from 18- to 34-year-olds to 18- to 24-year-olds it would place more of an emphasis on the growing Hispanic population but, also still attract the age group they currently serve has a target market. There is also the possibility of making the age range larger by focusing some promotions or advertisements towards even younger customers. This doesnt eliminate Squirts current customers but, also adds to the target market they are trying to reach. The relative youthfulness of the Hispanic population is reflected in its population under age 18 and its median age. The population in the United States under 18 in 2000 was 25. 7 percent and 35 percent of Hispanics were under 18. The median age for Hispanics was 25 and 35. 3 years for the entire United States population in 2000 therefore, if the target market is 18- to 24-year-olds as recommended by FCB then Squirt would be missing a large portion of the United States population as a whole and within the Hispanic population. This could possibly work against what Squirt is trying to achieve and potentially limit the target market to the point of even causing a decrease in case sales volume. If Squirt began focusing a few more promotions in the Hispanic communities around the United States, such as in New York, California, Arizona, and Texas but, also continue to remain committed to the market they currently serve I believe there would be an increase in case sales volume. Squirt could also even begin promoting to target markets beginning with a ounger age range since a large percentage of the United States population is under 18 including 35 percent of Hispanics. This is a target market Squirt should consider since the Hispanic population is only expected to continue to grow. Younger consumers may be an area for Squirt to consider also because teens and young adults are generally heavier consumer of regular soft drinks. This information is vital because research has shown that this is the primary audience for the soft drink market because taste and brand preferences are formed between 12 and 24 years of age. Targeting a younger age range could encourage brand loyalty that would create a deep psychological bond with the Squirt brand which consumers could continue to purchase throughout their life. This is preferable because not only will Squirt continue to remain committed to their current consumer market but, it will also open up the doors to a Hispanic community as well as younger consumers. The purpose of the FCB formal positioning review was to determine possible causes for the decrease in sales. Rather than ditching their current approach and position completely, if Squirt implemented a few recommendations from the FCB they would lay a solid foundation for Squirts future growth (R. Kerin amp; R. Peterson, 2010). Reference: Kerin Roger A. , Peterson Robert A. , (2010) Strategic Marketing Problems, Twelfth Edition. Upper Saddle River, NJ: Pearson Education, Inc. Bottom of Form 6. Where does Squirt Brand get its brand equity from? Explain your answer. Brand equity is the added value a brand name bestows on a product or service beyond the functional benefits provided. It has two distinct marketing advantages for the brand owner. First, brand equity provides a competitive advantage and second, consumers are often willing to pay a higher price for a product or service. Brand equity is represented as the premium a consumer will pay for one brand over another when the functional benefits provided are identical. However, brand equity is not easy to develop and consists of four steps. First, is to develop positive brand awareness and an association of the brand in consumers minds with a product class or need to give the brand an identity. The Squirt Brand began in 1938 and with World War II the low sugar content appealed to bottlers because of the restriction on sugar rations. In 1977, Squirt was purchased by Brooks Products, and they reformulated squirt, updated the logo, and positioned the brand as a mainstream soft drink. Second, a marketer must establish a brands meaning in the minds of consumers. Meaning arises from what a brand stands for and has two dimensions-a functional, performance-related dimension and an abstract, imagery-related dimension. Comparing this definition to the Squirt Brand, the brands meaning is thirst-quenching that benefits average every day, on-the-go adults. When establishing brand equity the third step is to elicit the proper consumer responses to a brands identity and meaning. This brings attention to how the consumers think and feel about a brand. Thinking focuses on the brands perceived quality, credibility, and superiority relative to other brands. Feeling relates to the consumers emotional reaction to a brand. In mid-1995 the Squirt Brand revised its creative strategy to focus more on a believability issue. So, rather than focusing on hip, cool, experiential nature of young adults it changed its creative strategy that portrayed spunky, lively, sociable, colorful, and music-driven advertisements. They also narrowed their target market from 18-44 year olds to 18-34 year olds. Consumer research showed that Squirt scored higher on their thirst-quenching attribute compared to other brands and the advertising of Squirt effectively communicated the intended fun and thirst-quenching message, portrayed Squirt users in an interesting, unique, and involving manner, and engaged the target audience with music. One negative from the research suggested that some consumers felt that some aspects of the commercials were juvenile. Although, the history of the brand name and the benefits it provides it consumers have kept the Squirt Brand competitive with sales exceeding preacquisition levels since 1995. The final step to brand equity is the most difficult. It is to create a consumer-brand resonance evident in an intense, active loyalty relationship between consumers and the brand. A deep psychological bond characterizes consumer-brand resonance and the personal identification consumers have with the brand. The Squirt Brand has been around since 1938 when it was first introduced by Herb Bishop. The loyalty began because it contained less sugar and with World War II this benefitted the bottler since there was a ration on sugar. In the 1950s, it became a mixers and by the 1970s it was introduced to Central and South America. When the brand was purchased in 1977 by Brooks Products, Squirt was reformulated, the logo was updated, the brand was positioned as a mainstream soft drink. By 1995, with the acquisition of Dr. Pepper/Seven Up Companies, Inc. , Squirt became part of larger company and the manufacturing, marketing, and distribution increased. This increased the sales of Squirt from 51. 1 million in 1994 to 55. 8 million in 1996. The Squirt Brand has been around for generations and the bond could come from what people grew up drinking and seeing their parents or grandparents drink. This is especially important since taste and brand preferences are formed between 12 and 24 years of age.