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?
If Negus' annual sales are $3,705,000 and all sales are on
credit, what is the firm's investment in accounts receivable? Round
your answer to the nearest dollar.
How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.
Cash conversion cycle = days inventory outstanding + days sales outstanding - days payable outstanding
Cash conversion cycle = 62 + 35 - 36
Cash conversion cycle = 61 days
Days of sales outstanding = 365 / Inventory turnover ratio
35 = 365 / receivables turnover ratio
receivables turnover ratio = 10.4286
receivables turnover ratio = net credit sales / average receivables
10.4286 = 3,705,000 / Average receivables
Average receivables = $355,2723
Inventory conversion period = 365 / inventory turnpover ratio
62 = 365 / inventory turnpover ratio
inventory turnpover ratio = 5.89 times
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