Question

A company has inventory balance of $26,169, accounts receivable of $10,432, and accounts payable of $15,226. If the credit sales are $194,874 and cost of goods sold are $139,527, what is the company's cash (conversion) cycle in number of days? (Use ending balances and assume 365 days in a year.)

Options:

	36.84
	37.84
	38.84
	39.83
	40.83

Answer 1

Days Inventory outstanding = 365 days * Inventory / Cost of Goods Sold
Days Inventory Outstanding = 365 * $26,169 / $139,527
Days Inventory Outstanding = 68.46 days

Days Sales Outstanding = 365days * Accounts Receivable / Sales
Days Sales Outstanding = 365 * $10,432 / $194,874
Days Sales Outstanding = 19.54 days

Days Payable Outstanding = 365 days * Accounts Payable / Cost of Goods Sold
Days Payable outstanding = 365 * $15,226 / $139,527
Day Payable Outstanding = 39.83 days

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding
Cash Conversion Cycle = 68.46 days + 19.54 days – 39.83 days
Cash Conversion Cycle = 48.17 days