Calculate the firms total operating cycle for 2005 and 2006

Question

Turnaround Strategies

Below are the balance sheet and income statement for 2005 and 2006 of a company that is in financial distress.

Balance Sheet for 2005 and 2006

	2005 ($)	2006 ($)
Cash	20,000	5,000
Accounts receivables	150,000	395,000
Inventories	300,000	200,000
Total current assets	470,000	600,000
Fixed assets, net	350,000	350,000
Total assets	820,000	950,000
Accounts payable	85,000	170,000
Accruals	40,000	50,000
Bank loan	150,000	150,000
Total current liabilities	275,000	270,000
Long-term debt	325,000	500,000
Common stock ($5 par)	100,000	100,000
Capital Surplus	70,000	70,000
Retained Earnings	50,000	10,000
Total liabilities and equity	820,000	950,000

Income Statement for 2005 and 2006

	2005 ($)	2006 ($)
Net sales	800,000	600,000
Cost of goods sold	500,000	400,000
Gross profit	300,000	200,000
Marketing	50,000	70,000
General and administrative	60,000	80,000
Depreciation	20,000	30,000
EBIT	170,000	20,000
Interest	50,000	60,000
Earnings before taxes	120,000	40,000
Income taxes (35%)	42,000	0
Net income	78,000	40,000

Your tasks:

1. Calculate the firm's total operating cycle for 2005 and 2006.
2. What type of working capital restructuring can the firm do to turn around its performance? What other types of asset restructuring might the firm consider?
3. What type of operations restructuring should the firm consider?
4. What type of financial restructuring should the firm consider?