Question

You are provided with the following information of company XYZ (Pty) Ltd. Sales (all on credit)...

You are provided with the following information of company XYZ (Pty) Ltd.

Sales (all on credit) R586542
COGS / Sales 84%
Inventory turnover 14
Accounts Receivable R507433
Accounts Payable R328413
Credit purchases R286202

Calculate the cash conversion cycle in days. (Hint: any part of a day constitutes 1 full day)

1. Inventory Conversion period:  

2. Days Sales Outstanding:  

3. Payables deferral period:

4. Cash conversion cycle:

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Homework Answers

Answer #1

1. Inventory conversion period = Days in a year/Inventory turnover = 365/14 = 26.07

2. Days sales outstanding = (Accounts receivable/Credit sales)* 365 = (507433/586542)*365 = 315.77

3. Payables deferral period = ( Accounts payable/COGS per day)

COGS per day = COGS/365

COGS/Sales = 84%

COGS = 586542*0.84 = 492695.28

COGS per day = 492695.28/365 = 1349.85

Payables deferral period = 328413/1349.85 = 243.30

4. Cash conversion cycle = Inventory conversion period + Days sales outstanding - Payables deferral period = 98.54 days

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