Question

Two years of financial statement data for the World Export Corporation are shown below. Calculate inventory-to-sale conversion period for 2016, calculate the sales to cash conversion for 2016, calculate the purchase to payment conversion period for 2016 and calculate the cash conversion cycle for 2016( For balance sheet items, use the average of the two years).

Balance Sheet 2015 2016

Cash $50,000             $50,000

Accounts Receivables 200,000             290,000

Inventories 450,000             550,000

Accounts Payable 130,000             140,000

Accruals 50,000               80,000

Long-term Debt 400,000             540,000

Income Statement            2017 2018

Net Sales                         $1,300,000         $1,700,000

Cost of Goods Sold 770,000             910,000

Depreciation 40,000               55,000

Interest 45,000               65,000

Net Income 99,000               204,000

Answer 1

Inventory-to-sale conversion period (Inventory period)=(average inventory/cost of goods sold)*365=(((450000+550000)/2)/910000)*365=200.55 days

Sales to cash conversion period (accounts receiavbles period)=((average accounts receivables/Net sales))*365=(((200000+290000)/2)/1700000)*365=52.60 days

Purchase to payment conversion period (accounts payables period)=(average accounts payables/Cost of goods sold)*365=(((130000+140000)/2)/910000)*365=54.15 days

Cash conversion cycle=Inventory period+accounts receiavbles period-accounts payables period=200.55+52.60-54.15=199.0 days