Question

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' 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.

Answer 1

a)

Cash conversion cycle = days inventory outstanding + days sales outstanding - days payable outstanding

Cash conversion cycle = 62 + 35 - 36

Cash conversion cycle = 61 days

b)

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

c)

Inventory conversion period = 365 / inventory turnpover ratio

62 = 365 / inventory turnpover ratio

inventory turnpover ratio = 5.89 times