Question

1. What is a company's cash conversion cycle and why is it important?

2. What is the likely impact of a shorter credit period on accounts receivable?

3. What is the likely impact of a loose credit policy on sales?

Answer #1

1. The cash conversion cycle (CCC) refers to a metric that is used to express the time taken for an entity to convert its investments in inventory and other resources into the cash flows from the day of sales.

It is often called CCC and is an important quantitative measures that help in evaluating the efficiency and effectiveness of a company's operations and management.

2. A shorter credit period is beneficial to the company as the cash is collected in a short period. The number of days to get the cash flow is less.

3.A loose credit period is not beneficial to the company as the cash is collected in a very longer period. The number of days to get the cash flow is too huge resulting in loss of opportunity cost.

Seiko Inc. has the following data. What is the company's cash
conversion cycle? Sales per day $13,500 Annual cost of goods sold
$1,300,000 Inventory $2,400,000 Accounts receivable $1,800,000
Accounts payable $2,800,000 (One year has 365 days)

Problem 16-11
Cash Conversion Cycle
Negus Enterprises has an inventory conversion period of 62 days,
an average collection period of 35 days, and a payables deferral
period of 36 days. Assume that cost of goods sold is 80% of sales.
Assume 365 days in year for your calculations.
What is the length of the firm's cash conversion cycle?
days
If Negus's annual sales are $3,705,000 and all sales are on
credit, what is the firm's investment in accounts receivable? Round...

Problem 21-11 Cash Conversion Cycle Negus Enterprises has an
inventory conversion period of 59 days, an average collection
period of 47 days, and a payables deferral period of 31 days.
Assume that cost of goods sold is 80% of sales. Assume 365 days in
year for your calculations. What is the length of the firm's cash
conversion cycle? days If Negus's annual sales are $3,651,525 and
all sales are on credit, what is the firm's investment in accounts
receivable? Round...

Cash Conversion Cycle
Negus Enterprises has an inventory conversion period of 60 days,
an average collection period of 48 days, and a payables deferral
period of 27 days. Assume that cost of goods sold is 80% of sales.
Assume a 365-day year. Do not round intermediate calculations.
What is the length of the firm's cash conversion cycle? Round
your answer to the nearest whole number.
___days
If annual sales are $4,124,500 and all sales are on credit, what
is the...

(1) Use the information below to compute the number of days in
the cash conversion cycle for each company.
(2) Which company is more effective at managing cash?
Spartan Co.
Chen Co.
Days' sales in accounts receivable
42
55
Days' sales inventory
25
29
Days' sales in accounts payable
32
37
Spartan Co.
Chen Co.
Cash to cash conversion cycle
More Effective Cash Management

Which action would NOT be likely to shorten the
length of the cash conversion cycle?
a.
adopting a new inventory system that reduces the inventory
conversion period
b.
reducing the average DSO on its accounts receivable
c.
reducing the amount of time the company takes to pay its
suppliers
d.
increasing sales while maintaining the same level of
receivables

Problem 16-11
Cash Conversion Cycle
Negus Enterprises has an inventory conversion period of 72 days,
an average collection period of 50 days, and a payables deferral
period of 29 days. Assume that cost of goods sold is 80% of sales.
Assume 365 days in year for your calculations.
What is the length of the firm's cash conversion cycle?
days
If Negus's annual sales are $3,757,625 and all sales are on
credit, what is the firm's investment in accounts receivable? Round...

Problem 16-11
Cash Conversion Cycle
Negus Enterprises has an inventory conversion period of 80 days,
an average collection period of 47 days, and a payables deferral
period of 33 days. Assume that cost of goods sold is 80% of sales.
Assume 365 days in year for your calculations.
What is the length of the firm's cash conversion cycle?
days
If Negus's annual sales are $3,693,025 and all sales are on
credit, what is the firm's investment in accounts receivable? Round...

Cash Conversion Cycle. Calculate the (a)
accounts receivable period, (b) accounts payable period, (c)
inventory period, and (d) cash conversion cycle for the following
firm:
Income Statement Data:
Sales
5,000
Cost of goods sold 4,200
Balance sheet data:
Beginning of Year
End of Year
Inventory
500
600
Accounts receivable
100
120
Accounts payable
250
290
Calculate the accounts receivable period:
Response (show formula and numerical
values):
Calculate the accounts payable period
Response (show formula and numerical
values):...

Calculate the accounts receivable period, accounts
payable period, inventory period, and cash conversion cycle for the
following firm:
Income statement data:
Sales 5,000
Cost of goods sold 4,200
Balance sheet data:
Inventory 550
Accounts receivable 110
Accounts payable 270

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