Costco has the following data for 2014 (in million dollars):
COSTCO |
|
Net sales |
112,640 |
Cost of goods sold |
98,458 |
Accounts payable |
8,491 |
Total inventories |
8,456 |
Accounts receivable |
791 |
What is their inventory flow time?
What is the company’s flow time for accounts payable? How about the flow time for accounts receivable?
What is the average cash-to-cash flow time for Costco in 2014?
Inventory Flow Time = 365 * Total Inventories / Cost of Goods
Sold
Inventory Flow Time = 365 * $8,456 / $98,458
Inventory Flow Time = 31.35 days
Flow Time for Accounts Payable = 365 * Accounts Payable / Cost
of Goods Sold
Flow Time for Accounts Payable = 365 * $8,491 / $98,458
Flow Time for Accounts Payable = 31.48 days
Flow Time for Accounts Receivable = 365 * Accounts Receivable /
Net Sales
Flow Time for Accounts Receivable = 365 * $791 / $112,640
Flow Time for Accounts Receivable = 2.56 days
Cash to Cash Flow Time = Flow Time for Accounts Receivable +
Inventory Flow Time - Flow Time for Accounts Payable
Cash to Cash Flow Time = 2.56 days + 31.35 days - 31.48 days
Cash to Cash Flow Time = 2.43 days
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