The Merchandising Ratio:A Comprehensive Measure of

Working Capital StrategyJane M. Cote and Claire Kamm

Latham

Dosen : Arda Raisuli, SE.,Ak.,MM,.QIA,.CRM

Anggota Kelompok:Gita Akhmad WibiksanaM. Gana MahendraMutia Anindita

INTRODUCTIONRatio analysis is one of the traditional

technical competencies expected of accounting graduates. It is presented as a method of analyzing the financing and investment decisions ofthe firm. While the seemingly endless list of ratios is relatively easy for students to memorize, the more difficult skill to develop is analysis of interrelationshipsamong financial variables to ascertain the financial position of the firm. Students often rely upon standard benchmarks, such as "the current ratio should be greater than 2.0,"to judge the firm's performance.When ratios provide conflicting evidence, interpretation becomes difficult. It is thus important to continually seek out new methods for analyzing financial statements.

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Analysis of the current, or shortterm, position of the firm is often reducedto computation ofthe current and quick ratios. If these ratios are above a minimum threshold, the liquidity position of the firm may be considered healthy. Receivable and inventory turnover ratios are computed and used to determine trends,both over time and relative to a competitor benchmark. Most textbooks present these ratios in isolation, with minimal attempt to discuss the integrative nature of these variables. However, the management of receivables, inventory and accounts payable has a tremendous impact on cash fiow, which in turn affects the profitability ofthe firm. The purpose of this teaching note is to introduce a ratio that measures the net effect

Jane M. Cote and Claire Kamm Latham are Assistant Professors at Washington State University. The authors are grateful to Rene Manes for providing the conceptual impetus for this note and for his continuing guidance.We appreciate the data collection assistance provided by Jodine Bennett and Susan Melchert. The paper has beneGtedfrom the insightful comments provided by the editor, David E. Stout, and three anonymous reviewers of a firm's working capital management strategy and to demonstrate how it can be used to enhance students‘ analytical skills.

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The focus of this proposed analysis is on retail firms. From a pedagogical perspective, the goal is to teach students about the importance of the cash conversion cycle and to demonstrate how to analyze the quality of working capital management strategies.A focus on retail organizations makes these learning goals easier.Analyzing the cash conversion cycle of manufacturing firms requires concurrent analysis of production cycle time, which adds complexity to the analysis (White et al. 1994). Once students have mastered their analysis of retail firms, they should be encouraged to extend their analysis to manufacturing firms

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A retail firm purchases inventory, generally using trade credit.

This inventory is sold and generates either cash or receivables.

Receivables are collected and, ultimately, the trade credit is satisfied. This is known as the cash conversion cycle (see figure 1), and success in retailing is tied to the firm's ability to manage this cycle (Richards and Laughlin 1980). If the firm cannot synchronize the cycle to produce positive cash flow, additional borrowings are necessary for the firm to continue operations. Whereas trade credit is spontaneous at the point of purchase and has a generally low (or no) cost, formal borrowing has both a lead time for negotiationand requires payment of interest. In addition, creditors can place restrictions on the activities of the firm, as well as the firm's cash balance, that limit the range of opportunities

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Working Capital ManagementA retail firm purchases inventory, generally

using trade credit. This inventory is sold and generates either cash or receivables. Receivables are collected and, ultimately, the trade credit is satisfied. This is known as the cash conversion cycle (see figure 1), and success in retailing is tied to the firm's ability to manage this cycle (Richards and Laughlin 1980). If the firm cannot synchronize the cycle to produce positive cash flow, additional borrowings are necessary for the firm to continue operations. Whereas trade credit is spontaneous at the point of purchase and has a generally low (or no) cost, formal borrowing has both a lead time for negotiationand requires payment of interest. In addition, creditors can place restrictions on the activities of the firm, as well as the firm's cash balance, that limit the range of opportunities

EXAMPLE

Tujuan Pembelajaran

•Mengetahui Merchandising Ratio

•Mengalisis pergerakan trend A/R, A/P dan Inventory turn over terhadap merchendising ratio

•Menganalisis merchandising Ratio dan pengaruhnya terhadap strategi manajemen dalam pengelolaan working capital

Berikut ini adalah daftar data time series selama lima

tahun (1990-1994)

Marchandising Ratio Days

Circuit City Inc.1990 2 81 40 431991 3 77 40 401992 8 74 37 451993 12 72 37 471994 13 74 42 45 550% -9% 5% 5%

Dilliard Departement1990 75 113 49 1391991 74 113 49 1381992 73 115 49 1391993 73 121 54 1401994 71 123 54 140 -5% 9% 10% 1%

Hancock Fabriec1990 2 282 79 2051991 2 301 76 2271992 2 307 62 2471993 1 302 59 2441994 2 315 67 250 0% 12% -15% 22%

TABEL 2

Perubahan Circuit City Inc.

Perubaahab Dilliard Departement

Perubahan Hancock Fabrieck

Day Receivable

Name Company

Day Payable

Day Inventory

Impect of InventoryKmart1990 9 115 38 861991 8 104 35 771992 8 100 35 731993 10 103 36 771994 13 111 40 84

Fred Mayer1990 3 83 30 561991 2 78 31 491992 2 74 31 451993 2 75 32 451994 2 78 35 45

Impact of Credit PolicyNordstrom

1990 72 83 38 1171991 69 78 36 1111992 67 79 35 1111993 64 80 34 1101994 60 82 35 107

Neiman Marcus1990 43 85 46 821991 41 81 43 791992 43 84 42 851993 49 86 41 941994 59 87 41 105

Industri ChangeWilliams Sonoma

1990 8 105 79 341991 6 96 64 381992 5 103 59 491993 4 101 49 561994 3 94 39 58

Lechters1990 2 133 39 961991 3 120 32 911992 3 117 24 961993 3 124 16 1111994 4 135 13 126

Table 3

Days Receivable Days Inventory Days Payable Merchandising Ratio DaysCompany Name

Name CompanyThe Limited

1990 41 48 17 721991 37 44 26 551992 36 48 15 691993 39 52 17 741994 47 53 19 81

The Gap1990 1 74 29 461991 1 59 25 351992 1 54 27 281993 1 61 32 301994 1 57 34 24

Days InventoryDays Receivable Days Payable Merchandising Ratio-Days

TABLE 4

Impact of Proprietary Charge Cards

KESIMPULAN

•Merchandising ratio dapat digunakan untuk menganalisis pergerakan account receivable, account payable dan inventory turn over.

•Merchandising ratio menggambarkan secara sederhana hubungan variable keuangan dan menganilisis management strategi working capital pada perushaaan.