Assume Inventory Holding Cost is set at 15%.
Using the data below , compute the impact on the key financial metrics on the following scenario:
The company followed an initiative that would reduce the COGS by by 5% and would also reduce Accounts Payable by 20%. (They negotiated lower prices of raw materials by promising to pay their suppliers quicker.)
Base | |
$ | |
Sales | 1,028.0 |
Cost of Sales | 621.0 |
Gross Profit | 407.0 |
Operating Expenses (incl SG&A) |
340.0 |
Operating Profit | 67.0 |
Interest Expense | 0.0 |
Other Income | 0.0 |
Pre-Tax Profit | 67.0 |
Taxes (25%) | 16.8 |
Net Profit | 50.3 |
HINT: To answer this question think about How would you present your analysis for Scenario #1 to a company that focuses on:
(i) Operational Excellence? (ii) Product Innovation?
Income Statement :-
Particulars | Amount($) |
Sales | 1028.00 |
Less : Cost of Sale/Cost of Goods Sold ($621-($621*5%)) | 589.95 |
Gross Profit | 438.05 |
Less : Operating Expenses | (340) |
Operating Profit | 98.05 |
Less : Interest Expenses | (0) |
Less : Other Income | (0) |
Pre Tax Profit | 98.05 |
Less : Tax @25% | (24.51) |
Net Profit | 73.54 |
Assume Inventory Holding Cost is set at 15%. Using the data below , compute the impact...