Question

Consider the following financial statement information for the Hop Corporation:

Item Beginning Ending Inventory

$11900   $12900

Account

Receivable $6900 $7200

Accounts

Payable $9100 $9500

Net Sales $99000

Cost of

Goods Sold $79000

Calculate the operating and cash cycles (Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.32.16)

Operating Cycle: days

Cash Cycle: days

Answer 1

Given

Particular	Ending	Beginning	Average
Inventory	12900	11900	12400
Accounts receivable	7200	6900	7050
Accounts payable	9500	9100	9300
Net sales	99000		99000
Cost of Goods sold	79000		79000

Inventory turnover ratio = COGS/Avg. inventory = 79000/12400 = 6.37

Accounts receivable turnover = Sales/Avg Accounts receivable = 99000/7050 = 14.04

Accounts payable turnover = COGS/Avg Accounts payable = 79000/9300 = 8.49

So, Days inventory outstanding = 365/Inventory turnover = 365/6.37 = 57.29 days

Days sales outstanding = 365/Accounts receivable turnover = 365/14.04 = 25.99 days

Days Payable periods = 365/Accounts payable turnover = 365/8.49 = 42.97 days

So, Operating cycle = DIO + DSO = 57.29 + 25.99 = 83.58 days

Cash cycle = Operating cycle - DPP = 83.58-42.97 = 40.31 days