Question

In: Finance

The Greek Connection had sales of $ 29.9 million and a cost of goods sold of...

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

Solutions

Expert Solution

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


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