Question

Luther Industries had sales of​ $980 million and a cost of goods sold of​ $560 million in 2006.  

A simplified balance sheet for the firm appears​ below:

Luther Industries

Balance Sheet

As of December​ 31, 2006​

(millions of​ dollars)

Assets			Liabilities and Equity
Cash	25		Accounts payable	60
Accounts receivable	85		Notes payable	425
Inventory	90		Accruals	45
Total current assets	200		Total current liabilities	530
Net​ plant, property, and equipment	6100		Long term debt	2725
Total assets	6300		Total liabilities	3255
			Common equity	3045
			Total liabilities and equity	6300

​Luther's cash conversion cycle is closest to​ ________.

Answer 1

here inventoey = $90

cost of goods sold = $560

DIO= (90/560)*365

DIO = 58.66

Accounts recievable =$85

since no credit sale is given , we are taking sales = ($$980)

DSO=(85/85)*365 = 31.65

Accounts payable= $60

cost of goods sold = $560

DPO = (60/560)*365 = 39.10

Cash conversion cycle = DIO + DSO - DPO = 58.66 + 31.65 - 39.10 = 51.21 days