Week 3 Discussion 1 and 2

1. Discuss how can management control cash. Your discussion should include what tools management may use to control cash. 2. Using The Children’s place, Inc’s annual financial statements from Mergentonline.com disclose the company’s cash balance, and discuss if you believe the company has too much or too little cash. Be sure to support your opinions with supporting facts. Discuss management’s responsibility to establish overall basic internal controls. Provide a real-life example from a work situation where you saw basic internal controls in place. Include one scholarly resource.

Discussion 1 week 3

1. Discuss how can management control cash. Your discussion should include what tools management may use to control cash.

Cash management entails managing the need to have enough cash on hand for cash flow needs and not so much in excess to become vulnerable to misappropriation. Businesses can manage cash using various tools: The implementation of a cash budget, bank reconciliations, cash flows, and petty cash funds. Petty cash funds are established to enable departments to complete small transactions as part of their daily operations, especially in situations where a transaction cannot be completed on time through the normal purchasing process (Nyathi & Benedict, 2017). The bank reconciliation is prepared for each bank account as soon as the bank statement is received and reviewed by someone independent of custody, record-keeping, and authorization responsibilities relating to cash (Porter & Norton, 2017). The purpose of this is to reconcile any differences between the bank’s recorded balance and the balance that appears on the company’s books.

• Using The Children’s Place, Inc’s annual financial statements from Mergentonline.com disclose the company’s cash balance and discuss if you believe the company has too much or too little cash. Be sure to support your opinions with supporting facts. Discuss management’s responsibility to establish overall basic internal controls. Provide a real-life example from a work situation where you saw basic internal controls in place. Include one scholarly resource.

For the fiscal year ending January 29, 2022, The Children’s Place, Inc. had total cash and cash equivalents of $54.787 million (THE CHILDREN’S PLACE, INC., 2022). This was a decline from the previous year’s total cash, with the firm recording total of $63.548 million and $68.487 million as of January 30th, 2021, and February 1st, 2020, respectively.  I believe the company has enough cash on hand to handle its expenses over the year 2022 especially after making a profit in 2022 compared to a loss in 2021. For the fiscal year ended January 29th, 2022, the firm made an operating income of $275.648 million, compared to the loss in the previous year amounting to over $199 million. The firm’s gross profit increased from d $461.4 million, or 138.4%, to $794.7 million during Fiscal 2021 from $333.3 million during Fiscal 2020. This rise in gross margin resulted from the increase in net sales which could be crucial in covering the expenses this year.

The management has a responsibility for establishing internal controls by maintaining adequate policies and procedures, communicating these policies and procedures, and monitoring compliance. There should be segregation of duties, record keeping, safeguarding, reconciliations, and authorizations. My previous employer had a practice of setting the annual budget and financial objectives several weeks before the end of the previous year. This enabled the staff to focus on the activities and operations that would derive from the budgeted finances and if this became difficult at any time during the year, the employer would arrange a meeting to discuss possible readjustments to prevent mass layoffs as we used to witness in other firms. Consequently, the employees knew there were internal controls to ensure the firm remained financially stable and sustainable in the long run.

References

Nyathi, M., & Benedict, O. H. (2017). An analysis of bookkeeping practises of micro-entrepreneurs in the retail clothing industry in cape town, south africa. Journal of Entrepreneurship & Organization Management, 6(2), 1-8.

Porter, G. A., & Norton, C. L. (2017). Financial accounting : the impact on decision makers. Cengage Learning.

THE CHILDREN’S PLACE, INC. (2022). ANNUAL REPORT ON FORM 10-K. Investor.childrensplace.com. https://investor.childrensplace.com/static-files/c412897e-3b00-4b60-87c8-5b3060ced9be

Using The Childrens place inc., and their 2021 annual report. Using the company’s financial statement, and straight line depreciation method. Calculate the average life, average age, and asset turnover ratios. Please include numbers. Discuss what each ratio tells you in the context of the Children’s place company. Calculate the accounts receivable turnover ratio and convert that ratio into days. Discuss what each ratio tells you in the context of the Children’s place company. Include one scholarly source

Using The Childrens place inc., and their 2021 annual report. Using the company’s financial statement, and straight line depreciation method. Calculate the average life, average age, and asset turnover ratios. Please include numbers. Discuss what each ratio tells you in the context of the Children’s place company.

Calculate the accounts receivable turnover ratio and convert that ratio into days. Discuss what each ratio tells you in the context of the Children’s place company. Include one scholarly source

Ratios are used to determine the age, composition, and quality of the operating assets. Because most long-term assets make up the major productive assets of most firms, the age and composition of these assets should be analyzed (Porter & Norton, 2017). The following were ratios calculations for the year ending 2021 using the company’s annual statements (THE CHILDREN’S PLACE, INC., 2022).

• Average life = (Property, plant, and equipment) / depreciation expense

2021 = $843,372,000 / $58,417,000 = 14.44%

2020 = 12.84%

• Average age = Accumulated depreciation / depreciation expense

2021 = $688,366,000 / $58,417,000 = 11.78%

2020 = 10.11%

• The assets turnover is a measure of the assets’ productivity.

Asset turnover = Net sales / Average total assets

2021 = $1,915,364,000 / $1,037,460,000 = 1.846

2020 = 1.33

The average life and age of The Childrens Place Inc. has been consistent from year to year and are in line with the companies in the industry. The asset turnover ratio measures how many dollars of assets are necessary for every dollar of sales. The firm’s asset turnover ratio indicates that each dollar of assets in 2021 produced 1.846 of sales, an improvement from 1.33 the previous year. It is an indication that the assets are productive are will be able to provide sales in future periods.

Analyzing the accounts receivable is crucial in the management of working capital. According to Porter and Norton (2017), the accounts receivable turnover ratio is a measure of how well a company manages its receivables.

Accounts Receivable Turnover Ratio = Net credit sales / Average accounts receivable

= 1,915,364,000 / $21,863,000 = 87.61 times

In 2021, The Childrens Place Inc. turned over its accounts receivable an average of 87.61 times. We can also calculate the number of days, on average, that accounts receivables are outstanding. This measure, number of days’ sales in receivables.

Assuming 360 days in a year:

• Number of days’ sales in receivables = Number of days in the period / accounts receivable turnover ratio.

360 / 87.61 times = 4 days.

This implies that The Childrens Place Inc. took 4 days on average to collect accounts receivable.

References

Porter, G. A., & Norton, C. L. (2017). Financial accounting : the impact on decision makers. Cengage Learning.

THE CHILDREN’S PLACE, INC. (2022). ANNUAL REPORT ON FORM 10-K. Investor.childrensplace.com. https://investor.childrensplace.com/static-files/c412897e-3b00-4b60-87c8-5b3060ced9be