Question

Your boss asks you to compute the company's cash conversion cycle. Looking at the financial statements, you see that the average inventory for the year was $126,300, accounts receivable were $97,900, and accounts payable were at $115,100. You also see that the company had credit sales of $324,000 and that cost of goods sold was $282,000. What is your firm's cash conversion cycle

Answer 1

Answer:

124.78 days

Explanation:

The computation of the cash cycle is shown below:

The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding  

where,

Day inventory outstanding = (Average inventory) ÷ cost of goods sold × number of days in a year

= ($126,300) ÷ $282,000 × 365 days

= 163.47 days

Day sale outstanding = (Average Accounts receivable) ÷ Net credit sales × number of days in a year

= ($97,900 ÷ $324,000) × 365 days

= 110.28 days

Day payable outstanding = (Average Accounts payable) ÷ cost of goods sold × number of days in a year

= ($115,100 ÷ $282,000) × 365 days

= 148.97 days

Now put these days to the above formula  

So, the days would equal to

= 163.47 days + 110.28 days - 148.97 days

= 124.78 days