Question

What is the firms cash conversion cycle for each year 1999 to 2001? Is there a component of the CCC that suggest anything about the firm's performance? Case details to be found http://www.chegg.com/homework-help/questions-and-answers/objective-case-26-estimate-star-river-s-weighted-average-cost-capital-assess-packaging-mac-q19923028

Answer 1

Cash conversion Cycle (CCC)= DSO + DIO - DPO

DSO = Accounts Receivable/Annual Sales * 365

DSO(1999) = 25,364/80,115 * 365 =115.55

DSO (2000) = 28,078/92,613 *365 =110.65

DSO(2001) = 35,486/106,042*365 =122.14

DIO = Inventory/COGS * 365

DIO(1999) = 27662/65208*365 = 154.83

DIO(2000)= 53828/78185*365 = 251.29

DIO (2001) = 63778/88983*365= 261.61

DPO = Accounts payable/COGS * 365

DPO(1999)= 12806/65208*365 = 71.68

DPO(2000)= 11890/78185*365 = 55.51

DPO (2001= 13370/88983 *365 = 54.84 Days

Cash conversion Cycle (CCC)= DSO + DIO - DPO

CCC(1999) = 115.55 + 154.83 - 71.68 = 198.7 Days

CCC(2000) = 110.65 + 251.29 - 55.51 = 306.43 Days

CCC(2001) = 122.14 + 261.61 - 54.84 = 328.91 days

The Cash conversion Cycle is increasing over the three years which is a weak signal. The foirm has to reduce its Inevntory and reduce DIO