Question

The 2018 and 2019 balance sheets for NW Stone Supply showed Cash of $ 6 comma 100 and $ 7 comma 600 ​respectively, Accounts Receivable of $ 15 comma 000 and $ 18 comma 000​, ​respectively, Inventory of $ 13 comma 500 and $ 10 comma 500​, ​respectively, and Accounts Payable of $ 4 comma 600 and $ 7 comma 600​, respectively. Its 2019 Income Statement showed Net Sales of $ 113 comma 000​, Cost of Goods Sold of $ 53 comma 000​, and Net Income of $ 33 comma 000. What is the cash conversion cycle for​ 2019? (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest​ day.)

Answer 1

Answer: Cash Conversion Cycle is approximately 94 days.

Explanation: The Cash Conversion Cycle is a cycle where the company purchases inventory, sells the inventory on credit, and collects the accounts receivable and turns them into cash.

Cash Conversion Cycle = Days of Sales Outstanding (DSO) + Days of Inventory Outstanding (DIO) - Days of Payables Outstanding (DPO)

DSO = [(BegAR + EndAR) / 2] / (Revenue / 365) =(( 15000 + 18000)/2)/( 113000/365) = 16500/309.59 = 53.30

DIO = [(BegInv + EndInv / 2)] / (COGS / 365) = ((13500 + 10500)/2)/(53000/365) = 12000/ 145.21 = 82.64

DPO = (Average Accounts payables/ Cost of goods sold) × 365 days =( 6100 / 53000) × 365 = 42

CCC = DSO + DIO – DPO

=53.30 + 82.64 - 42 = 93.94

Approximately 94 days.

Answer 2

Cash coversion cycle is 93.93 days

Step-by-step explanation:

We have average:

+ Account receivable = $16,500; Inventory = $12,000; Account Payable = $6,100

Calculation of related conversion cycles:

Days inventory outstanding = Average inventory/COGS x 365 = (12,000/53,000) x 365 = 82.64 days

Days sales outstanding = Average receivable / Net sales x 365 = 16,500/113,000 x 365 = 53.30 days

Days payable outstanding = Average payable / COGS x 365 = 6,100/53,000 x 365 = 42.01 days

=> Cash conversion cycle = Days inventory outstanding + Days sales outstanding - Days payable outstanding = 82.64 + 53.30 - 42.01 = 93.93 days