Question

2. In the table below is information for two companies:

$000)	Company K	Company L
Net sales(revenues	21,472	23,314
Cost of goods sold	13,050	5,192
Average inventory	350	457
Average accounts receivable	1,837	4,996
Average accounts payable	2,025	1,048
Turnover days
Days inventory outstanding	37	32
Days sales outstanding	31	78
Days payable outstanding	61	75
Total assets	12,500	12,000
Cash conversion cycle

From the above data, make the observations about the relative performance and determine better-performed company. (Remember that the shorter the number of days in this cycle, more the amount of available cash, and less need to borrow).

Answer 1