Question

Excel technology is trying to increase its cash flow cycle. Sales in 2019 was $3,250,000 ( all on credit) and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year. and its DSO was 41days. Its annual cost of goods sold was $1,800,000. The firm had fixed assets $535,000, its payable deferral period is 45 days. Calculate Excel technology's cash conversion cycle

Answer 1

56.83 days

Step-by-step explanation:

Calculation to determine Excel technology's cash conversion cycle

First step is to determine the Days inventory outstanding

Days inventory outstanding = 365 / Inventory turnover

Days inventory outstanding= 365 /6.0

Days inventory outstanding= 60.83 days

Now let determine the Cash conversion cycle

Cash conversion cycle = Days inventory outstanding + Days sales outstanding - Days payable outstanding

Cash conversion cycle=60.83 + 41 - 45

Cash conversion cycle=56.83 days

Therefore Excel technology's cash conversion cycle is 56.83 days