Question

BTN 15-9 Apple and Samsung are competitors in the global marketplace. Apple’s and Samsung’s financial statements are in Appendix A.

Required

1. Determine the change in Apple’s and Samsung’s inventories for the most recent year reported. Then identify the impact on net resources generated by operating activities (increase or decrease) for the change in inventory level (increase or decrease) for Apple and Samsung for that same year.

2. How would the move to a just-in-time (JIT) system likely impact future operating cash flows and operating income?

3. Would a move to a JIT system likely impact Apple more than it would Samsung? Explain.

Short answer

1. Samsung is performing better than Apple in terms of operating cash flow.
2. Moving to just-in-time inventory will improve the operating cash flow for the business entities.
3. Moving to just-in-time inventory will have a higher effect on the income of Apple.

Step-by-step solution

Definition of Operating Cash Flow

Operating cash flow can be defined as the metric that provides information about the inflow generated by the business entity from the primary business operations. It is reported in the first part of the statement of cash flow.

Change in the inventor of the company

Company	2014	2015	Increase/ (decrease)
Apple	$2,111	$2,349	$238
Samsung	KRW 17,317,504	KRW 18,811,794	KRW 1,494,290

Calculation of percentage increase considering 2014 as the base year:

Company	Increase	/	2014	=	Percentage increase
Apple	$238	/	$2,111	=	11.27%
Samsung	KRW 1,494,290	/	KRW 17,317,504	=	8.63%

The inventory of Apple has increased at a higher percentage compared to Samsung. It means that the operating cash flow of Samsung is better than Apple’s because less cash is tied up in the inventory.

Impact of moving to just-in-time inventory

When the business entity moves to just-in-time inventory, it will improve the future operating cash flow and operating income because, under this method, less inventory will be handled by the business entity. It will reduce the overall cost for the business entity by reducing the inventory handling cost.

Higher impact of moving to the just-in-time inventory

Moving to just-in-time inventory will affect Apple to a higher extent because it is handling more inventory than Samsung. Therefore, the reduction in cost will be higher for Apple than for Samsung.