Question

ABC Inc. recently hired your consulting firm to improve the company's performance. It has been highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle?

Average inventoy= 75,000
Annual sales= 600,000
Annual cost of goods sold= 360,000
Average accounts receivable= 160,000
Average accounts payable= 25,000

Answer 1

CCC - Cash Conversion Cycle 148,03 Days

Step-by-step explanation:

The Cash Conversion Cycle it's the sum of "Days of Inventory Outstanding".

"Days Sales Outstanding" and "Days Payables Outstanding"

CCC - Cash Conversion Cycle : 76,04 + 97,33 + 25,35 = 148,03

• Days of Inventory Outstanding

It's calculated by dividing Average Inventory by Cost of Goods,

and that result multiplied by 365

• Days Sales Outstanding

It's calculated by dividing Accounts Receivable by Sales,

and that result multiplied by 365

• Days Payables Outstanding

It's calculated by dividing Accounts Payables by Cost of Goods,

and that result multiplied by 365

CCC - Cash Conversion Cycle 148

DIO - Days of Inventory Outstanding 76,04 = 75,000/360,000*365

Average Inventory 75,000

Cost Of Goods 360,000

DSO - Days Sales Outstanding 97,33 = $160,000/$600,000*365

Accounts Receivable 160,000

Sales 600,000

DPO - Days Payables Outstanding 25,35 = $25,000/$360,000*365

Accounts Payables 25,000

Cost Of Goods 360,000