Question

Parramore Corp has $12 million of sales, $3 million of inventories, $4 million of receivables, and $1.5 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at a 9% rate. Assume 365 days in year for your calculations.

What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
days

Answer 1

The cash conversion cycle (CCC) is the period time between a company's expenditure on raw materials and receiving payment from its customers. For Parramore Corp, the CCC is calculated using the days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO).

Step-by-step explanation:

The cash conversion cycle (CCC) for Parramore Corp can be calculated using three components: days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO). The calculations are as follows:

• 
  
• Cost of Goods Sold (COGS): $12 million * 70% = $8.4 million
• 
  
• DIO: ($3 million / $8.4 million) * 365 days = 131.55 days
• 
  
• DSO: ($4 million / $12 million) * 365 days = 121.67 days
• 
  
• DPO: ($1.5 million / $8.4 million) * 365 days = 65.18 days

Combining these components gives the CCC:

CCC = DIO + DSO - DPO = 131.55 + 121.67 - 65.18 = 188.04 days