Resources: Chapters 6,7,8 of Course Text Learning Objective: Define and explain principles of working capital management, managing current assets, and short-term financing of current assets. Taylor the CEO of WES received your email and would like to understand a bit more about your recommendations. In your analysis you raised concerns about the following: the collection of Accounts Receivables. the amount of debt; and the payment of Accounts Payable. Accounts Receivables The WES leadership team tried to evaluate its credit policy but discovered that the initial growth of the company happened so quickly they never formalized their credit procedures. WES has provided a sample invoice and the most recent aged receivables for your reference. Taylor is unsure where to start to document the administration of accounts receivable and is looking for your advice. Amount of Debt Since your last communication Taylor, has been busy meeting with several banks. WES is looking to consolidate all the existing short-term debt plus some additional funds to ensure smooth operations over the next quarter. The lending arrangements that were discussed WES would have a loan of $3.0 million and pay $300,000 in interest. All the loans look like Taylor, and Taylor provides you with the information below. Taylor is looking for your advice on which one is best. Option 1: A discounted interest loan, pdlid back in 270 days. Option 2: A simple interest loan, paid back in 270 days. Accounts Payable Taylor has always waited until the vendors start calling the company before making any payments. The vendors usually call several times before a payment is made and sometimes WES are charged interest. Taylor explains that WES has never taken advantage of the 2% discount that all their suppliers offer if they pay on day 15, as cash has been tight. In the wind industry, the invoices are usually 2/15 net 45. Now, that WES is looking at consolidating the short-term debt based on your recommended financing decision, it plans to get back on track" and pay all their vendors on day 45. Advise Taylor on their approach to Accounts Payable discount, and if they should take advantage of the discount or not. Required: Following the sample memo template as a guide write a memo to Taylor addressing the following: Summarize in Word for Taylor: o Reviews documents/policies or procedures could help with Accounts Receivable, including reviewing existing sample invoice. o Which lending option is best for the company and why o Whether WES should take the AP discounts. Attach a spreadsheet with your supporting calculations for o Comparative Financing Options; and o Accounts Payable recommendation. Remember Taylor is not as experienced in finance as you are. Your memo should be a minimum of 400 words and a maximum of 1000. I Appendix 1 WES Balance Sheet March 31, 2022 Assets Cash Accounts Receivable (net) Inventories Total Current Assets Plant and Equipment Less: Accumulated Amort Land 50,000 2,500,000 1,000,000 3,800,000 6,000,000 2,000,000 4,000,000 80,000 7,880,000 Liabilities Accounts Payable Notes Payable (current) Total Current Liabilities Long-term Bank Loan Shareholders Equity Common Stock (1.7M Shares) Retained Earnings 2,150,000 350,000 2,500,000 2,500,000 1,700,000 1,180,000 7,880,000 WES Competitor 4.39% 5.75% 4296 6.90% 11.7456 9.20% 3.08 X 4.35 4.62 X 6.5 x Ratio analysis Profit margin Return on assets Retum on equity Receivable turnover Laventory turnover Accounts payable turnover Capital asset turnover Total asset turnover Current ratio Quick ratio Debt to total assets Interest coverage 2.15 X 3.8 x 1.89 X 0.98 X 1.52 X 1 12 X 63.45% 3.08 X 1.85 1.20 x 1.45 x 1.10 x 25.05% 5.35 Aged Accounts Receivable Receivable Balance Month of Sales Age of Account Outstanding Mar-2022 0-30 150,000.00 Feb-2022 31-60 300,000.00 Jan-2022 61-90 550,000.00 December 2021 & Earlier 91+ 1,500,000.00 Total Accounts Receivable 2,500,000.00 Sample Invoice Rockway Framers Inc INVOICE 101 Windy Ave Brandon 204-989-9468 DATE: INVOICE: FOR: February 22, 2021 100 Framing House BILL TO: Customer ABC DESCRIPTION HOURS RATE AMOUNT s $ $ SUBTOTAL $ TAX RATE SALES TAX $ OTHER TOTAL $ Payments accepted by cheque Resources: Chapters 6,7,8 of Course Text Learning Objective: Define and explain principles of working capital management, managing current assets, and short-term financing of current assets. Taylor the CEO of WES received your email and would like to understand a bit more about your recommendations. In your analysis you raised concerns about the following: the collection of Accounts Receivables. the amount of debt; and the payment of Accounts Payable. Accounts Receivables The WES leadership team tried to evaluate its credit policy but discovered that the initial growth of the company happened so quickly they never formalized their credit procedures. WES has provided a sample invoice and the most recent aged receivables for your reference. Taylor is unsure where to start to document the administration of accounts receivable and is looking for your advice. Amount of Debt Since your last communication Taylor, has been busy meeting with several banks. WES is looking to consolidate all the existing short-term debt plus some additional funds to ensure smooth operations over the next quarter. The lending arrangements that were discussed WES would have a loan of $3.0 million and pay $300,000 in interest. All the loans look like Taylor, and Taylor provides you with the information below. Taylor is looking for your advice on which one is best. Option 1: A discounted interest loan, pdlid back in 270 days. Option 2: A simple interest loan, paid back in 270 days. Accounts Payable Taylor has always waited until the vendors start calling the company before making any payments. The vendors usually call several times before a payment is made and sometimes WES are charged interest. Taylor explains that WES has never taken advantage of the 2% discount that all their suppliers offer if they pay on day 15, as cash has been tight. In the wind industry, the invoices are usually 2/15 net 45. Now, that WES is looking at consolidating the short-term debt based on your recommended financing decision, it plans to get back on track" and pay all their vendors on day 45. Advise Taylor on their approach to Accounts Payable discount, and if they should take advantage of the discount or not. Required: Following the sample memo template as a guide write a memo to Taylor addressing the following: Summarize in Word for Taylor: o Reviews documents/policies or procedures could help with Accounts Receivable, including reviewing existing sample invoice. o Which lending option is best for the company and why o Whether WES should take the AP discounts. Attach a spreadsheet with your supporting calculations for o Comparative Financing Options; and o Accounts Payable recommendation. Remember Taylor is not as experienced in finance as you are. Your memo should be a minimum of 400 words and a maximum of 1000. I Appendix 1 WES Balance Sheet March 31, 2022 Assets Cash Accounts Receivable (net) Inventories Total Current Assets Plant and Equipment Less: Accumulated Amort Land 50,000 2,500,000 1,000,000 3,800,000 6,000,000 2,000,000 4,000,000 80,000 7,880,000 Liabilities Accounts Payable Notes Payable (current) Total Current Liabilities Long-term Bank Loan Shareholders Equity Common Stock (1.7M Shares) Retained Earnings 2,150,000 350,000 2,500,000 2,500,000 1,700,000 1,180,000 7,880,000 WES Competitor 4.39% 5.75% 4296 6.90% 11.7456 9.20% 3.08 X 4.35 4.62 X 6.5 x Ratio analysis Profit margin Return on assets Retum on equity Receivable turnover Laventory turnover Accounts payable turnover Capital asset turnover Total asset turnover Current ratio Quick ratio Debt to total assets Interest coverage 2.15 X 3.8 x 1.89 X 0.98 X 1.52 X 1 12 X 63.45% 3.08 X 1.85 1.20 x 1.45 x 1.10 x 25.05% 5.35 Aged Accounts Receivable Receivable Balance Month of Sales Age of Account Outstanding Mar-2022 0-30 150,000.00 Feb-2022 31-60 300,000.00 Jan-2022 61-90 550,000.00 December 2021 & Earlier 91+ 1,500,000.00 Total Accounts Receivable 2,500,000.00 Sample Invoice Rockway Framers Inc INVOICE 101 Windy Ave Brandon 204-989-9468 DATE: INVOICE: FOR: February 22, 2021 100 Framing House BILL TO: Customer ABC DESCRIPTION HOURS RATE AMOUNT s $ $ SUBTOTAL $ TAX RATE SALES TAX $ OTHER TOTAL $ Payments accepted by cheque