Question

The asset side of the 2016 balance sheet for Leggett & Platt (a furniture manufacturer) follows....

The asset side of the 2016 balance sheet for Leggett & Platt (a furniture manufacturer) follows. The company reported net sales of $3,749.9 million in 2016 and $3,917.2 million in 2015. Use this information to answer the requirements:

LEGGETT & PLATT, INCORPORATED

Consolidated Balance Sheets (excerpts)

(in millions)

Dec. 31, 2016

Dec. 31, 2015

Current Assets

Cash and cash equivalents

$281.9

$ 253.2

Trade receivables, net of allowance $7.2 and $9.3, at December 31, 2016 and 2015, respectively

450.8

448.7

Other receivables, net

35.8

71.5

   Total receivables, net

486.6

520.2

Inventories

   Finished goods

255.7

242.8

   Work in process

52.6

42.6

   Raw materials and supplies

245.1

241.8

   LIFO reserve

(33.8)

(22.6)

      Total inventories, net

519.6

504.6

Prepaid expenses and other current assets

36.8

33.2

      Total current assets

1,324.9

1,311.2

Property, plant and equipment – at cost

   Machinery and equipment

1,133.8

1,099.1

   Buildings and other

559.4

548.2

   Land

37.7

40.0

      Total property, plant and equipment

1,730.9

1,687.3

   Less accumulated depreciation

(1,165.4)

(1,146.5)

      Net property, plant and equipment

565.5

540.8

Table continued

LEGGETT & PLATT, INCORPORATED

Consolidated Balance Sheets (excerpts)—continued

(in millions)

Dec. 31, 2016

Dec. 31, 2015

Other Assets

   Goodwill

791.3

806.1

   Other intangibles, less accumulated amortization of $137.0 and $139.8 at December 31, 2016 and 2015, respectively

164.9

188.4

   Sundry

137.5

117.2

      Total other assets

1,093.7

1,111.7

     Total assets

$2,984.1

$2,963.7

Required:

a. Compute the accounts receivable turnover for 2016 and 2015. At December 31, 2014, accounts and other receivables, net were $523.3 million.

b. Compute the days sales outstanding (DSO) for each year.

c. If a Target is set to reduce DSO by 10 days, how much ($) would Accounts receivable be reduced by?

Homework Answers

Answer #1

a)
Accounts receivable turnover ratio for 2016 = Net credit sales / average accounts receivable
= $3,749.9 / ((486.6 + 520.2) / 2)
= 7.4491 or 7.45

Accounts receivable turnover ratio for 2015 = Net credit sales / average accounts receivable
= 3,917.2 / ((520.2 + 523.3) / 2)
= 7.5078 or 7.51

b)
Days sales outstandings for 2016= 365 / Accounts receivable turnover
= 365 / 7.4491
= 48.9989 days or 49.00 days

Days sales outstandings for 2015= 365 / Accounts receivable turnover
= 365 / 7.5078
= 48.6160 days or 48.62 days


c)
For 2016:

DSO = Average accounts receivable / (credit sales / 365)
(49 - 10) = Average accounts receivable / ($3,749.9 / 365)
39 = Average accounts receivable / 10.2737

Average accounts receivable = 10.2737 * 39 = $400.66

Average accounts receivable would be reduced by = ((486.6 + 520.2) / 2) - $400.66 = $102.74

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