Question

Quantitative Problem: Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $150,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.29 times during the year. Its receivables balance at the end of the year was $13,117.75 and its payables balance at the end of the year was $7,399.8. Using this information calculate the firm's cash conversion cycle. Do not intermediate calculations. Round your answer to the nearest whole number.

Answer 1

days of inventory on hand = number of days in a year/inventory turnover

days of inventory on hand = 365/8.29

days of inventory on hand = 44.03

Receivables turnover = Credit sales/receivables

Receivables turnover = 150000/13117.75

Receivables turnover = 11.43

days of sales outstanding = number of days in a year/receivables turnover

days of sales outstanding = 365/11.43

days of sales outstanding = 31.93

Accounts payables turnover = purchases/payables

Accounts payables turnover = 112500/7399.8

Accounts payables turnover = 15.2

days of payables outstanding = number of days in a year/accounts payable turnover

days of payables outstanding = 365/15.2

days of payables outstanding = 24.01

Operating cycle = days of sales outstanding + days of inventory on hand

Operating cycle = 31.93+44.03

Operating cycle = 75.96

Cash conversion cycle = Operating cycle - days of payables outstanding

Cash cycle = 75.96-24.01

Cash cycle = 52