Question

What is the cash conversion cycle of this company? Please show your working. Annual Sales: €35,000...

What is the cash conversion cycle of this company? Please show your working.

Annual Sales: €35,000
Average Accounts Receivables: €750
COGS: €20,000
Average Inventories: €3,000
Average Trade Payables: €1,500

****PLEASE DO NOT ANSWER IF YOU ALREADY DID. I'm getting a second opinion on this. Thanks.

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Answer #1

Answer : Cash Conversion Cycle = Days Inventory outstanding + Days Receivable Outstanding - Days Payable Outstanding

Days Inventory outstanding = (Average Inventory / Cost of Goods Sold) * Number of days

Days Inventory outstanding = (3000 / 20000) * 360

= 54 days

Assuming Number of days is 360 days

Days Receivable outstanding = ( Average Accounts Receivable / Annual Sales ) * Number of days

= (750 / 35000) * 360

= 7.7142857112

Days Payable Outstanding =  ( Average Accounts Payable / COGS ) * Number of days

= (1500 / 20000) * 360

= 27

Cash Conversion Cycle = 54 + 7.7142857112 - 27

= 34.71 days

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