Question

Consider the following financial statement information for the Hop Corporation:

Answer 1

Answer:

Operating cycle = 59.29 days

Cash cycle = 26.1115 days

Explanation:

From the information given:

$\text{Beginning Inventory \ 16,284} \\ \\ \text{Beginning Accounts receivable 11,219} \\ \\ \text{Beginning Accounts payable 13,960} \\ \\ \text{Ending Inventory 19,108} \\ \\ \text{Ending Accounts receivable 13,973} \\ \\ \text{Ending Accounts payable 16,676} \\ \\ \text{Net sales \ 219,320} \\ \\ \text{Cost of goods sold 168,420}$

$\text{Ending Inventory \ 19,108} \\ \\ \text{Ending Accounts receivable 13,973} \\ \\ \text{Ending Accounts payable 16,676} \\ \\ \text{Net sales \ 219,320} \\ \\ \text{Cost of goods sold 168,420}$

To start with:

$\text{Average inventory = } \dfrac{Beginning \ value +Ending \ value}{2} \\ \\ =\dfrac{ 16,284 + 19,108} {2} \\ \\ = \dfrac{35,392}{ 2} \\ \\ = \ 17,696$

$\text{Average receivable }=\dfrac{ Beginning value + Ending value }{ 2} \\ \\ =\dfrac{ 11,219 + 13,973 }{2} \\ \\ =\dfrac{ 25,192 }{ 2} \\ \\= \ 12,596$

$\text{Average payable }= \dfrac{Beginning \ value + Ending\ value}{ 2} \\ \\ = \dfrac{13,960 + 16,676 }{2} \\ \\= \dfrac{30,636}{2} \\ \\ = \ 15,313$

$\text{Days of inventory outstanding} = \dfrac{Average \ inventory }{ Cost \ of \ goods \ sold } \times 365 \\ \\ \dfrac{= 17,686}{ 168,420} \times 365 \\ \\ = 0.105\times 365 \\ \\= 38.329 \ days$

$\text{Days \ of \ receivable \ outstanding }= \dfrac{Average \ receivable }{ sales }\times 365 \\ \\ \dfrac{= 12,596 }{ 219,320} \times 365 \\ \\ = 0.0574 \times 365 \\ \\= 20.951 \ days$

$\text{Days of payable outstanding} = \dfrac{Average payable}{cost of goods sold} \times 365 \\ \\ = \dfrac{15,313 }{ 168,420} \times 365 \\ \\ = 0.0909 \times 365 \\ \\= 33.1785 days$

$\text{Operating Cycle = Days of inventory outstanding + Days of receivable outstanding} \\ \\ = 38.339 + 20.951 \\ \\ = 59.29 days$

$\text{Cash Conversion Cycle = Operating cycle - Days of payable outstanding} \\ \\ = 59.29 - 33.1785 \\ \\ = 26.1115 days$