Case-in-point, True Religion Apparel, Incorporated Cash to Suppliers. To solve for the actual cash spent on purchases of inventory, we need to go through two steps. First, we'll analyze the inventory account to determine how much inventory we added. We're going to use base analysis again for this. If we know the beginning and ending inventory as well as the cost of goods sold, we can very easily determine the amount of inventory added by solving for that variable. For our projected results, we also need to solve for that variable of increase in inventory. However, we will need the forecasted ending inventory amount as well as the forecasted cost of goods sold from our projections.

Using the projections, we'll have beginning inventory, which we'll take from the previous balance sheet end. Our inventory sold, which is obviously a reduction in our inventory, comes from the cost of goods sold forecast. Again, coming from management, usually monthly, converted to weekly. And our ending inventory will be calculated in our forecast by making an assumption on inventory days. That is generally the more reliable and predictable way to forecast inventory. We will then solve for our new purchases, and again, we could make an assumption for this but generally this is calculated as the plug. Similar to the days sales outstanding or DSO, the inventory days will give us the most accurate data we need to calculate the cash disbursements to the vendors. So again, first we're gonna calculate the inventory that was most likely purchased on credit and then we're going to take a look at the accounts payable next and see how much of that credit actually got paid off in the form of cash. We have historical data here and the inventory days is high, and that is most likely because we typically calculate this ratio on total cost of goods sold. But in this model, we've broken out the labor from cost of goods sold so that we can focus on our labor expenditure. If we were using total cost of goods sold as we do in audited or public financial statements when we calculate this ratio, this number would be the lower. We do see the forecast inventory days dropping slightly from a high of 170 when inventory was most likely completely stalled at the beginning of the pandemic lockdowns to a decrease as old stock was either moved or sold online or discounted or sold off to discount stores. Using those assumptions, we calculate the ending inventory, use the CoGS from our forecast, and then back out the purchases. We see a real spike in purchases in week four and this is most likely in anticipation of stores beginning to open for Memorial Day weekend in the US as well as for the summer months, and that was the point in time at which most people felt that stores could open safely. And so in this 13-week forecast, we see an anticipated spike here.

The second step is to take our additions to inventory or purchases of inventory and determine how much of that was actually cash sent to our suppliers. Again, we will use base analysis for this, using the accounts payable beginning and ending amounts, using the purchases of inventory as the addition to accounts payable, and then solving for the cash payments to the vendors. For our projections, again, we are going to need to solve for our projected cash payments to vendors, and in order to do that, we need to have the beginning accounts payable, the purchases of inventory forecast, as well as the forecast ending accounts payable, which we will do similarly to what we did for inventory. In terms of finding that data, again, the beginning accounts payable is gonna come from our previous balance sheet end. Our additions to accounts payable, this is the amount of inventory that was purchased, and that has already been calculated in the inventory-based analysis. We're solving for the payments to vendors and therefore the ending accounts payable is going to come from a payable days ratio. We begin by using the inventory purchases calc from the previous slide on top, and we're going to calculate the payments to the vendors below. The accounts payable days historically was around 30 days and it was dropping, probably a function of the small amount of inventory that was required in the early days of the lockdowns for the pandemic. The forecast for that is to go back up in line with historicals. When we back out the purchases, we see that the resulting cash payments to vendors is zero. This means that TRA has basically asked suppliers to take a holiday while it sorts this out. Now this is not easy to do and from the supplier's perspective, granting a few weeks of holiday with some added late fees, as opposed to losing a massive customer like TRA is probably an easy decision for them to make. This is a good time to point out again that this is an inside model. There's no way we're gonna be able to come up with these assumptions without some guidance here from the financial management team of the borrower.

And so we can see here the payments to vendors are being piped into this model in the merchandise vendors line. This is under the operating disbursements. This forecast shows merchandise vendors getting paid nothing for the first several weeks and then the backlog begins to clear as the stores open in early June and the cash flow begins to come in. Not an assumption that one would make without some guidance from management.