In: Finance
Consider the following financial statement information for the Hop Corporation:
Item Beginning Ending
Inventory $11,600 $12,600
Accounts receivable 6,600 6,900
Accounts payable 8,800 9,200
Net sales $96,000
Cost of goods sold 76,000
Calculate the operating and cash cycles.
Average Collection Period
Average Collection Period = Average Accounts Receivables / Credit Sales per day
= [($6,600 + $6,900)/2] / [$96,000 365 Days]
= [$13,500 / 2] / [$96,000 365 Days]
= $6,750 / $263.01 per day
= 25.66 Days
Days sales in Inventory
Days sales in Inventory = Average Inventory / Cost of goods sold per day
= [($11,600 + $12,600)/2] / [$76,000 / 365 Days]
= [$24,200 / 2] / [$76,000 / 365 Days]
= $12,100 / $208.22 per day
= 58.11 Days
Accounts Payables Deferral Period
Accounts Payable Deferral Period = Average Accounts Payable / Cost of goods sold per day
= [($8,800 + $9,200] / [$76,000 / 365 Days]
= [$18,000 / 2] / [$76,000 / 365 Days]
= $9,000 / $208.22 per day
= 43.22 Days
Operating Cycle
Operating Cycle = Average Collection Period + Days sales in Inventory
= 25.66 Days + 58.11 Days
= 83.77 Days
Cash Cycle
Cash Cycle = Operating Cycle – Accounts Payables Deferral Period
= 83.77 Days – 43.22 Days
= 40.55 Days