Question

The Greek Connection had sales of

$ 29.9

million and a cost of goods sold of

$ 12.0

million in 2013. A simplified balance sheet for the firm appears? below:

a. Calculate The Greek? Connection's net working capital in 2013.

b. Calculate the cash conversion cycle of The Greek Connection in 2013.

c. The industry average accounts receivable days is 30 days. What would have been the cash conversion cycle for The Greek Connection in 2013 had it met the industry average for accounts receivable? days? (Hint: Use a ? 365-day year.)

THE GREEK CONNECTION
BALANCE SHEET as of December? 31, 2013 ?(thousands of? dollars)

Assets			Liabilities and Equity
Cash	?$1,557		Accounts payable	?$1,496
Accounts receivable	4,301		Notes payable	1,000
Inventory	1,122		Accruals	1,220
Total current assets	?$6,980		Total current liabilities	?$3,716
Net? plant, property, and equipment	?$8,500		?Long-term debt	?$3,000
Total assets	?$15,480		Total liabilities	?$6,716
			Common equity	?$8,764
			Total liabilities and equity	?$15,480

Answer 1

Answer a.

Net Working Capital = Current Assets - Current Liabilities
Net Working Capital = $6,980 - $3,716
Net Working Capital = $3,264

Answer b.

Days Inventory Outstanding = 365 * Inventory / Cost of Goods Sold
Days Inventory Outstanding = 365 * $1,122 / $12,000
Days Inventory Outstanding = 34.1 days

Days Sales Outstanding = 365 * Accounts Receivable / Sales
Days Sales Outstanding = 365 * $4,301 / $29,900
Days Sales Outstanding = 52.5 days

Days Payable Outstanding = 365 * Accounts Payable / Cost of Goods Sold
Days Payable Outstanding = 365 * $1,496 / $12,000
Days Payable Outstanding = 45.5 days

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding
Cash Conversion Cycle = 34.1 days + 52.5 days - 45.5 days
Cash Conversion Cycle = 41.1 days

Answer c.

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding
Cash Conversion Cycle = 34.1 days + 30.0 days - 45.5 days
Cash Conversion Cycle = 18.6 days