Consider the following financial statement information for the Ayala Corporation: Item Beginning Ending Inventory $ 10,500 $ 11,500 Accounts receivable 5,500 5,800 Accounts payable 7,700 8,100 Credit sales $ 85,000 Cost of goods sold 65,000 Calculate the operating and cash cycles.

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Business

Arjun Krause

7 March, 21:24

Consider the following financial statement information for the Ayala Corporation: Item Beginning Ending Inventory $ 10,500 $ 11,500 Accounts receivable 5,500 5,800 Accounts payable 7,700 8,100 Credit sales $ 85,000 Cost of goods sold 65,000 Calculate the operating and cash cycles.

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Wood · Answer 1

Cash conversion cycle = 41.67

Operating Cycle = 86.03

Explanations:

Average Invetory = (10500 + 11500) / 2 = 11,000.00

Average accounts receivable (AR) = (5500 + 5800) / 2 = 5,650.00

Average Accounts payable (AP) = (7700 + 8100) / 2 = 7,900.00

Credit Sales = 85,000.00

AR Turnover = 85000/5650 = 15.04

Days sales outstanding = 365 / 15.04 = 24.26

Cost of goods sold = 65,000.00

AP turnover = 65000/7900 = 8.23

Days payable outstanding = 365/8.23 = 44.36

Inventory turnover = 65000/11000 = 5.91

Days inventory O/S = 365/5.91 = 61.77

Cash conversion cycle = Days Inventory outstanding + days Sales o/S - Days Payable O/S = 61.77 + 24.26 - 44.36 = 41.67

Operating Cycle = Days' Sales of Inventory + Days Sales Outstanding 61.77 + 24.26 = 86.03