Question

Shulman Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? Annual sales = $45,000 Annual cost of goods sold = $30,000 Inventory = $4,500 Accounts receivable = $1,800 Accounts payable = $2,500

Answer 1

38.93

Step-by-step explanation:

Firm Cash Conversion Cycle = Inventory Conversion Period + Average Collection Period - Payable Deferral Period

Inventory Conversion Period = 365 * Inventory / Annual cost of goods sold

365 days * 4500 / 30000 = 54.75

Average Collection Period = 365 days * Account receivable / sales

= 365 * 1800 / 45000 = 14.60

Payable Deferral Period = 365 days * Account payable / sales = 365 * 2500 / 30000 = 30.42

Hence, Firm Cash Conversion Cycle = 54.75 + 14.60 - 30.42 = 38.93

The firm Cash Conversion Cycle is 38.93