Question

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 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)- Firm's cash conversion cycle

Firm's cash conversion cycle = Inventory Conversion period + Average Collection period – Payables deferral period

= 59 Days + 47 Days – 31 Days

= 75 Days

“Firm's cash conversion cycle = 75 Days”

(b)- Firm's investment in accounts receivables

Firm's investment in accounts receivables = Annual sales x (Average collection period / 365 Days)

= $36,51,525 x (47 / 365)

= $470,196

“Firm's investment in accounts receivables = $470,196”

(c)-Inventory Turnover Ratio

Inventory Turnover Ratio = Number of days in a year / Inventory Conversion Period

= 365 Days / 59 Days

= 6.19 Times

“Negus Enterprises turn over its inventory 6.19 Times”