Question

During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $75 million, and average inventory of $50 million.Assuming a 365-day year, the number of days required for Carl Equipment to convert its average inventory into cash is:

A) 73.0.
B) 36.5.
C) 304.2.
D) 24.3.

Answer 1

B) 36.5

Step-by-step explanation:

To find the number of days, at first, we have to find the inventory turnover. Inventory turnover states that the company's ability to generate sales from its unused inventory. The company can find its inventory turnover through the following way -

Inventory turnover ratio = Cost of Goods Sold / Average Inventory

Inventory turnover ratio = $500 / $50

Inventory turnover ratio = 10 times

Now, we can find the number of days to convert its average inventory into cash:

Number of days = 365 days/10 times

Number of days = 36.5.