Hip Replacement and Surgery

Module 4, Discussion 2

Question 1. There are several ways to reduce the cash conversion cycle. The big one is to turn over the inventory faster. If Lowe's is able to manage inventory in such a way that it moves items out of the store faster, then it will be able to collect cash for that inventory faster. That is not to say that moving inventory faster is easier, but it is definitely one of the main ways for a retailer to increase the pace at which it converts cash. One major big box retailer famously seeks to turn inventory over so quickly that it can pay for the goods with the revenue earned from selling those same goods – early enough to receive a discount!
There are other ways, however, that can be examined, that look at different other variables (Investopedia, 2017). Another variable in the cash conversion cycle is the pace by which goods are paid for, either by Lowe's or by its customers. As a highly unlikely example, Lowe's could insist that all goods are paid for only in cash – that would reduce the time it takes to collect cash for purchases to nil, thereby improving the cash conversion cycle. More likely, Lowe's would negotiate this with the credit card companies to receive payment in near real time, as any lag contributes to a worse cash conversion cycle.
The other means is if Lowe's delays on its own payables. If Lowe's delays on its payables long enough so that sends cash out much closer to the time at which it will receive cash for those goods, it will have a tighter cash conversion cycle.

Question 2. The distortions during periods of rapid price change are one of the reasons why LIFO is banned under IFRS (Tun, 2015). Not that any of that matters in the case of Ford. Ford does not have very much inventory on its balance sheet. As of the end of 2016, Ford had $8.898 billion in inventory, versus revenues of $151.8 billion, implying an inventory turnover of 17 times (Yahoo Finance, 2017). When one thinks about the inventory Ford should have – parts, works in progress and finished goods – it becomes apparent that this is a fairly low level of inventory. There are two main reasons for this.
The first main reason is that Ford sells through a dealer network. The company does not own the dealerships, so as soon as it produces a vehicle, it sells the vehicle to the dealership. However long it takes the dealer to sell, that vehicle is not sitting as finished goods inventory on Ford's balance sheet. The other reason is that Ford prefers a just-in-time inbound logistics system. Henry Ford is sometimes cited as the developer of this system (O'Reilly, 2008). Ford's suppliers are located within a few hours of a Ford plant, and they deliver regularly to the plant. Thus, there is little parts inventory on Ford's balance sheet. Most of Ford's inventory is works-in-progress inventory, reflecting the time it takes the company to produce the vehicles and get them out to the dealers.

Question 3. Investment banks are often utilized to assist with mergers and acquisitions. They play a few different roles in this activity. First, investment banks often do a lot of the legwork in making deals happen – seeking out partners and selling them on the idea. Getting multiple players involved will often help to drive up the value of the deal, great for a sell-side investment banker (DeChesare, no date). The investment bank undertakes a financial analysis to determine the appropriate value for the deal, has access to financing if that is needed, and can help facilitate the deal in a lot of other ways. Thus, firms will typically employ the services of an investment banker in order to maximize the selling value/minimizing the buying price, to influence the structure of the deal and to make sure that there is financing available to make the deal happen, should that be necessary.

References

DeChesare, B. (no date). Mergers & acquisitions in investment banking: What you do every day. Mergers & Acquisitions. Retrieved September 2, 2017 from http://www.mergersandinquisitions.com/investment-banking-groups-mergers-acquisitions/

Investopedia (2017) Cash conversion cycle. Investopedia. Retrieved September 2, 2017 from http://www.investopedia.com/terms/c/cashconversioncycle.asp

O'Reilly, J. (2008). Ford and Toyota legacy: Origin of the species. Inbound Logistics. Retrieved September 2, 2017 from http://www.inboundlogistics.com/cms/article/the-evolution-of-inbound-logistics-the-ford-and-toyota-legacy-origin-of-the-species/

Tun, Z. (2015) Why LIFO is banned under IFRS. Investopedia. Retrieved September 2, 2017 from http://www.investopedia.com/articles/investing/042115/why-last-first-out-banned-under-ifrs.asp

Yahoo Finance (2017) Ford Motor Company. Yahoo! Finance. Retrieved September 2, 2017 from https://finance.yahoo.com/quote/F/financials?p=F