The Hopewell Pharmaceutical



The Hopewell Pharmaceutical Company’s balance sheet and income statement for last year are as follows:

Balance Sheet ( in Millions of Dollars)
Assets                                                                          Liabilities and Equity

Cash and marketable securities           $1,100             Accounts payable                    $ 900
Accounts receivable                              1,300             Accrued liabilities
Inventories*                                             800                         (salaries and benefits)   300
Other current assets                                 200             Other current liabilities             700
Total current assets                             $3,400             Total current liabilities            $1,900
Plant and equipment (net)                     2,300             Long-term debt and other
Other assets                                           1,000                         liabilities                       1,000
Total assets                              $6,700             Common stock                          1,800
Retained earnings                     2,000
Total stockholders’ equity      $3,800
Total liabilities & equity    $6,700

*Assume that average inventory over the year was $800 million, that is, the same as ending inventory

Income Statement (in Millions of Dollars)

Net Sales                                                                                 $6,500
Cost of Sales                                                                             1,500
Selling, general, and administrative expenses                           2,500
Other expenses                                                                             800
Total expenses                                                                         $4,800
Earnings before taxes                                                                1,700
Taxes                                                                                            680
Earnings after taxes (net income)                                           $1,020

a. Determine Hopewell’s cash conversion cycle.

b. Give an interpretation of the value computed in (a).