ACC - Leggett & Platt (a furniture manufacturer)
PROBLEM # 1: Accounts Receivable Turnover and Average Collection Period
The asset side of the 2011 balance sheet for Leggett & Platt (a furniture manufacturer) is below. The company reported net sales of $3,636.0 million in 2011 and $3,359.1 million in 2010. Use this information to answer the requirements:
LEGGETT & PLATT, INCORPORATED | ||
Consolidated Balance Sheets | ||
December 31 | 2011 | 2010 |
(in millions) | ||
Cash and cash equivalents | $ 236.3 | $ 244.5 |
Accounts and other receivables, net of allowance of $24.3 (2011) and $22.1 (2010) | 503.6 | 478.9 |
Finished goods | 261.3 | 241.1 |
Work in process | 41.5 | 47.7 |
Raw materials and supplies | 223.9 | 218.2 |
LIFO reserve | (85.7) | (71.7) |
Total inventories, net | 441.0 | 435.3 |
Other current assets | 43.1 | 60.4 |
Total current assets | 1,224.0 | 1,219.1 |
Machinery and equipment | 1,120.1 | 1,136.6 |
Buildings and other | 608.5 | 613.0 |
Land | 45.2 | 48.5 |
Total property, plant and equipment | 1,773.8 | 1,798.1 |
Less accumulated depreciation | 1,193.2 | 1,173.9 |
Net property, plant and equipment | 580.6 | 624.2 |
Goodwill | 926.6 | 930.3 |
Other intangibles, less accumulated amortization of $106.2 and $107.8 at December 31, 2011 and 2010, respectively | 116.6 | 152.3 |
Sundry | 67.3 | 75.1 |
TOTAL ASSETS | $2,915.1 | $3,001.0 |
Required:
a. Compute the accounts receivable turnover for 2011 and 2010.At December 31, 2009, accounts and other receivables, gross were $491.6 million.
b. Compute the average number of days that the receivables were outstanding in each year.
c. Does the number of days to collect receivables seem appropriate for Leggett & Platt?
d. How could Leggett & Platt improve its accounts receivable turnover?
e. Explain the changes in the allowance for doubtful accounts from 2010 through 2011. Does it appear that Legget increased or decreased its allowance for doubtful accounts beyond what seems reasonable? As background, write-offs were $19.9 in 2011 and $10 in 2010.
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Solution: ACC - Leggett & Platt (a furniture manufacturer) Solution