Question

The Global Corp has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? What does the number mean? Annual sales = $45,000 Annual cost of goods sold = $22,500 Inventory = $4,500 Accounts receivable = $1,800 Accounts payable = $2,500

Answer 1

Answer:

Inventory Conversion Period = 365 days * Inventory / Cost of Goods Sold
Inventory Conversion Period = 365 * $4,500 / $22,500
Inventory Conversion Period = 73

Days on Sales = 365 days * Accounts Receivable / Sales
Days on Sales = 365 days * $1,800 / $45,000
Days on Sales = 14.6

Payable Deferred = 365 days * Accounts Payable / Cost of Goods Sold
Payable Deferred = 365 days * $2,500 / $22,500
Payable Deferred = 40.56

Cash Conversion Cycle = Inventory Conversion Period + Days on Sales – Payables Deferred
Cash Conversion Cycle = 73 + 14.6 – 40.56
Cash Conversion Cycle = 47.04