Question

Using XYZ Company's income statements and balance sheets below, compute the company's cash conversation cycle (CCC).

	2015	2014
Assets
Cash	$ 85,632	$ 84,530
Accounts receivable	878,000	778,000
Inventories	1,716,480	1,820,330
Total current assets	$ 2,680,112	$ 2, 682,860
Gross fixed assets	1,197,160	1,197,160
Less accumulated depreciation	380,120	390,255
Net fixed assets	$ 817,040	$ 806,905
Total assets	$ 3,497,152	$ 2,690,930
Liabilities and Equity
Accounts payable	$ 436,800	$ 525,700
Accruals	408,000	395,000
Notes payable	300,000	300,000
Total current liabilities	$ 1,144,800	1,220,700
Long-term debt	400,000	400,000
Common stock	1,721,176	1,721,176
Retained earnings	231,176	281,280
Total equity	$ 1,952,352	$ 2,002,456
Total liabilities and equity	$ 3,497,152	$3,623,156

	2015	2014
Sales	$ 8,035,600	$ 7,860,500
Cost of goods sold	6,875,992	6,223,480
Other expenses	550,000	425,650
Total operating costs excluding deprec. & amort.	$ 7,425,992	$ 6,649,130
EBITDA	$ 609,608	$ 1,211,370
Deprec. & amort.	115,960	135,870
Operating income (EBIT)	$ 493,648	$ 1,075,500
Interest expense	71,008	98,002
Earnings before taxes	$ 422,640	$ 977,498
Taxes (40%)	169,056	390,999
Net income	$ 253,584	$ 586,499
EPS	$ 1.014	$ 2.346
DPS	$ 0.220	$ 0.220
Book value per share	$ 7.809	$ 8.009
Stock price	$ 12.17	$ 14.02
Shares outstanding	250,000	250,000
Tax rate	40.00%	40.00%
Lease payments	30,000	35,000

                                                                          

Answer 1

Cash conversion cycle=accounts receivable days+inventory days-accounts payable days

2014:

accounts receivable days=(accounts receivables/Sales)*365=(778000/7860500)*365=36.13 days

Inventory days=(Inventory/Cost of goods sold)*365=(1820330/6223480)*365=106.76 days

accounts payable days=(accounts payable/Cost of goods sold)*365=(525700/6223480)*365=30.83 days

Cash conversion cycle=36.13+106.76-30.83=112.05 days

2015:

accounts receivable days=(878000/8035600)*365=39.88 days

Inventory days=(1716480/6875992)*365=91.12 days

acccounts payable days=(436800/6875992)*365=23.19 days

Cash conversion cycle=39.88+91.12-23.19=107.81 days