Cash Conversion Cycle
Negus Enterprises has an inventory conversion period of 60 days, an average collection period of 48 days, and a payables deferral period of 27 days. Assume that cost of goods sold is 80% of sales. Assume a 365-day year. Do not round intermediate calculations.
What is the length of the firm's cash conversion cycle? Round your answer to the nearest whole number.
If annual sales are $4,124,500 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar.
How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.
a. The length is computed as shown below:
= inventory conversion period + average collection period - payables deferral period
= 60 days + 48 days - 27 days
= 81 days
b. The accounts receivable is computed as shown below:
= (Average collection period x Annual sales) / 365 days
= (48 days x $ 4,124,500) / 365 days
= $ 542,400
c. The times per year is computed as shown below:
= 365 days / inventory conversion period
= 365 / 60
= 6.08 Approximately
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