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? round to the nearest day.

Question

Business

Brandi

9 September, 13:43

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? round to the nearest day.

+3

Answers (1)

Know the Answer?

Mccullough · Answer 1

Cash conversion cycle is an efficiency ratio which measures the number of days for which a companyâ€™s cash is tied up in inventories and accounts receivable. It is aimed at assessing how effectively a company is managing its working capital. Formula Cash Conversion Cycle = DSO + DIO â€" DPO Where, DSO is days sales outstanding = Average Accounts Receivable Ă - 365 Ă· Credit Sales DIO is days inventory outstanding = Average Inventories Ă - 365 Ă· Cost of Goods Sold DPO is days payables outstanding = Average Accounts Payable Ă - 365 Ă· Cost of Goods Sold DSO = (97,900*365) / 324,000=110.2 DIO = (126,300*365) / 282,000=163.5 DPO = (115,100*365) / 282,000=149 Cash Conversion Cycle = DSO + DIO â€" DPO Cash Conversion Cycle = 110.2+163.5-149=125 (Approx)