Question
In: Finance
What is the cash conversion cycle of this company? Please show your working. Annual Sales: €35,000...
What is the cash conversion cycle of this company? Please show your working.
Annual Sales: €35,000
Average Accounts Receivables: €750
COGS: €20,000
Average Inventories: €3,000
Average Trade Payables: €1,500
Solutions
Expert Solution
Solution: Cash Conversion Cycle calculation measures how long cash is tied up in inventory and other resources input into cash. we divide it into 3 parts
1st Part: Inventory : it represent how long will company take to sell this inventory
2nd part: it represent the current sales and the amount of time it takes to collect the cash from these sales.
3rd part: it represent when company will pay to his vendors for purchased goods.
Cash Conversion Cycle= Days Inventory Outstanding+Days of Sales Outstanding + Days Payable Outstanding
Days Inventory Outstanding= Average inventory/Cost of goods sold*365
= 3000/20000*365=54.75 days Round of 55 days
Days of Sales Outstanding= AccountReceivable/ Net credit Sale*365
= 750/35000*365=7.82 days = 8 days
Days Payable Outstanding= Accounts Payable/ Cost of goods sold*365
= 1500/20000*365= 27.37= 27 days
According to Formula= 55+8-27=36 days
High Cash conversion cycle means companyis inefficient to measure the cash.
Low cash conversion cycle means company is efficient in managing cash
Conclusion: Answer is 36 days
jeff jeffy answered 2 years agoRelated Solutions
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increase in average accounts...
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Explain the cash conversion cycle (CCC). Describe the CCC for your employer or company in an...
Explain the cash conversion cycle (CCC). Describe the CCC for
your employer or company in an industry in which you're interested.
What are some specific things that your company could do to
decrease your cash conversion cycle? Let's be sure to describe, in
pretty specific terms, the CCC for our company and what could be
done to shorten it.
Explain the cash conversion cycle (CCC). Describe the CCC for your employer or company in an...
Explain the cash conversion cycle (CCC). Describe the CCC for
your employer or company in an industry in which you're interested.
What are some specific things that your company could do to
decrease your cash conversion cycle? Let's be sure to describe, in
pretty specific terms, the CCC for our company and what could be
done to shorten it.
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