Question

1. The following information is from a firm’s 2018 income statement and balance sheet. Use it to calculate the Cash Conversion Cycle (8 points)

Sales	122,800
Cost of Goods Sold	104,380
Accounts Receivable	10,900
Inventory	1,420
Accounts Payable	22,640

Answer 1

Answer:

Days Sales Outstanding = 365 day * Accounts Receivable / Sales
Days Sales Outstanding = 365 * $10,900 / $122,800
Days Sales Outstanding = 32.40 days

Days Inventory Outstanding = 365 days * Inventory / Cost of Goods Sold
Days Inventory Outstanding = 365 * $1,420 / $104,380
Days Inventory Outstanding = 4.97 days

Days Payable Outstanding = 365 days * Accounts Payable / Cost of Goods Sold
Days Payable Outstanding = 365 * $22,640 / $104,380
Days Payable Outstanding = 79.17 days

Cash Conversion Cycle = Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding
Cash Conversion Cycle = 32.40 + 4.97 – 79.17
Cash Conversion Cycle = -41.8 days