The Merchandising Ratio: A Comprehensive Measure of Working Capital Strategy Jane M.

Cote and Claire Kamm Latham

Dosen : Arda Raisuli, SE.,Ak.,MM,.QIA,.CRM Anggota Kelompok: Gita Akhmad Wibiksana M. Gana Mahendra Program Mutia Anindita

PPA Trisakti 20 B

INTRODUCTION
Ratio 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

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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

Working Capital Management

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

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)

TABEL 2
Day Name Day Day Marchandising Payable Company Receivable Inventory Ratio Days Circuit City Inc. 1990 2 81 40 1991 3 77 40 1992 8 74 37 1993 12 72 37 1994 13 74 42 Dilliard Departement 1990 75 113 49 1991 74 113 49 1992 73 115 49 1993 73 121 54 1994 71 123 54 Hancock Fabriec 1990 2 282 79 1991 2 301 76 1992 2 307 62 1993 1 302 59 1994 2 315 67

43 40 45 47 45 139 138 139 140 140 205 227 247 244 250

Perubahan Circuit City Inc.

550%

-9%

5%

5%

Perubaahab Dilliard Departement -5% 9% 10%

1%

Perubahan Hancock Fabrieck 0% 12% -15%

22%

Table
Company Name Impect of Inventory Kmart 1990 1991 1992 1993 1994 Fred Mayer 1990 1991 1992 1993 1994 Impact of Credit Policy Nordstrom 1990 1991 1992 1993 1994 Neiman Marcus 1990 1991 1992 1993 1994 Industri Change Williams Sonoma 1990 1991 1992 1993 1994 Lechters 1990 1991 1992 1993 1994 Days Receivable 9 8 8 10 13 3 2 2 2 2

3
Merchandising Ratio Days 86 77 73 77 84 56 49 45 45 45

Days Inventory Days Payable 115 104 100 103 111 83 78 74 75 78 38 35 35 36 40 30 31 31 32 35

72 69 67 64 60 43 41 43 49 59

83 78 79 80 82 85 81 84 86 87

38 36 35 34 35 46 43 42 41 41

117 111 111 110 107 82 79 85 94 105

8 6 5 4 3 2 3 3 3 4

105 96 103 101 94 133 120 117 124 135

79 64 59 49 39 39 32 24 16 13

34 38 49 56 58 96 91 96 111 126

TABLE 4 Impact of Proprietary Charge Cards

Name Company Days Receivable The Limited 1990 41 1991 37 1992 36 1993 39 1994 47 The Gap 1990 1 1991 1 1992 1 1993 1 1994 1 Days Inventory 48 44 48 52 53 74 59 54 61 57 Days Payable Merchandising Ratio-Days 17 26 15 17 19 29 25 27 32 34 72 55 69 74 81 46 35 28 30 24

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.