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21 September, 19:25

Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales. The average inventory is $369,000, accounts payable average $438,000, and receivables average $147,000. How long is the cash cycle?

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  1. 21 September, 19:55
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    The cash cycle is equal to 13.19

    Explanation:

    The formula to calculate cash cycle is =

    days sales outstanding + days inventory outstanding - days payables outstanding

    The formula to calculate days sales outstanding is =

    receivables average * 365 : Credit Sales =

    ($147,000 * 365) / $1,620,000 = 33.12

    The formula to calculate days inventory outstanding is =

    average inventory * 365 : costs of goods sold

    ($369,000 * 365) / $1,263,600 = 106.59

    The formula to calculate days payables outstanding is =

    accounts payable average * 365 : costs of goods sold

    ($438,000 * 365) / $1,263,600 = 126.52

    Cash cycle is = 33.12 + 106.59 - 126.52 = 13.19
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