Question

A business analysis has recently been hired to improve the performance of a firm. As one part of your analysis, the analyst wants to determine the firm’s cash conversion cycle. Using the following information and a 365-day year: Current inventory = $2,000,000; Annual sales = $10,000,000; Accounts receivable = $657,534; Accounts payable = $657,534; Cost of goods sold = $8,000,000. Calculate the firm’s inventory conversion cycle.

		27 days
		73 days
		65 days
		95 days

Based on information from Question 46, Calculate the firm’s receivables collection period.

		33 days
		73 days
		70 days
		24 days

Based on information from Question 46, Calculate the firm’s payables deferral period.

		30 days
		33 days
		70 days
		24 days

Based on information from Question 46~48, Calculate the firm’s cash conversion cycle (CCC).

		67 days
		82 days
		36 days
		70 days

Answer 1

Inventory conversion cycle = ( Current inventory / Sales ) * Days in a year = ( 2000000 / 10000000 ) * 365	73	days
Receivables collection period = ( Accounts receivable / Sales ) * Days in a year = ( 657534 / 10000000 ) * 365	24	days
payables deferral period = ( Accounts payables / Cost of goods sold ) * Days in a year = ( 657534 / 8000000 ) * 365	30	days
cash conversion cycle = Inventory conversion cycle + Receivables collection period - payables deferral period = 73 + 24 - 30	67	days
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