Question

Calculating Cycles. Consider the following financial statement information for the Chimp Computers Corporations

Item	Beginning		Ending
Inventory	780		950
Accounts receivable	650		770
Accounts payable	750		910
Net Sales		6,000
Cost of goods sold		2,500

Calculate Operating Cycle in days

Calculate Cash cycle in days

Answer 1

Operating Cycle (Days)/ Cash conversion cycle = DIO + DSO – DPO

DIO = Days Inventory Outstanding

DSO = Days Sales Outstanding

DPO = Days Payable Outstanding

Item	Beginning		Ending	Average
Inventory	780		950	865
Accounts receivable	650		770	710
Accounts payable	750		910	830
Net Sales		6,000
Cost of goods sold		2,500

	Numerator	Denominator	Value
DIO= average inventory/ COGS per day	=2500/365= 6.85	=(780+950)/2= 865	=865/6.85= 126.28
DSO= average accounts receivable/ sales per day	=6000/365= 16.44	=(650+770)/2= 710	=710/16.44= 43.19
DPO= average accounts payable/ sales per day	=6000/365= 16.44	=(750+910)/2= 830	=830/16.44= 50.49
Operating cycle (days)= DIO + DSO – DPO			=126.28+43.19-50.49= 119.98