Question

Given the flowing financial information about Amazon

	2018	2017		2018	2017
Assets			Liabilities & Equity
Current Assets			Current Liabilities
Cash, Cash Equivalents & STI	41250	30986	Accounts Payable	52353	46565
Accounts & Notes Receivables	16677	13164	Notes Payable	9502	6221
Inventories	17174	16047	Other ST Liabilities	6536	5097
Total Current Assets	75101	60197	Total Current Liabilities	68391	57883
Fixed Assets	87547	71113	Long-term liabilities	50708	45718
			Stock Holder's Equity	43549	27709
Total Assets	162648	131310	Total Liability and Equity	162648	131310
Sales (2018)	265468
COGS (2018)	156345

1. (4 pts) Calculate Amazon’s operating cycle

2. (6 pts) Calculate Amazon’s cash cycle. How will you interpret their cash cycle?

Answer 1

Calculation of
Operating Cycle	=	Inventory period+Accounts Receivable Period
Inventory Period	=	365/Inventory Turnover
Inventory Turnover	=	Cost of Goods sold/Average Inventory
Cost of Goods sold(given)	=	156345
Average Inventory	=	(Inventory of 2017+Inventory of 2018)/2
	=	=(16047+17174)/2
	=	16,610.50
Inventory Turnover	=	156345/16610.50
	=	9.41
Inventory Period	=	365/Inventory Turnover
	=	365/9.41
	=	38.78
Accounts Receivable Period	=	365/Receivable Turnover
Receivable Turnover	=	Credit sales/Average Accounts Receivable
Assumption	=	Sales given is credit sales.
Average Accounts Receivable	=	(Receivable of 2017+Receivable of 2018)/2
	=	=(13164+16677)/2
	=	14920.5
Credit Sales (Given)	=	265468
Receivable Turnover	=	265468/14920.5
	=	17.79
Accounts Receivable Period	=	365/17.79
	=	20.51
Operating Cycle	=	Inventory period+Accounts Receivable Period
	=	38.78+20.51
	=	59.29
Say	=	59 days
Cash Cycle	=	Days of Inventory Outstanding+Days of Sales Outstanding-Days of Payable Outstanding
	OR
Cash Cycle	=	Operating Cycle-Days of Payable Outstanding
Day of payable outstanding	=	Average Accounts payable/Cost of goods sold per day
Cost of goods sold per day	=	156345/365
	=	428.34
	=	(Payable of 2017+Payable of 2018)/2
	=	(46565+52353)/2
Average Accounts payable	=	49459
Day of payable outstanding	=	49459/428.34
	=	115.47
Cash Cycle	=	Operating Cycle-Days of Payable Outstanding
	=	59.29-115.47
	=	-56.18
Interpretation of this cash cycle	=
Normally cash cycle comes positive it shows that company has to engage some cash in the cycle which create some cost to it but in this case cycle is negative it means company is successfully using funds of its customers to hold and delaying the payments of its creditor. By this way it becomes source of finance and company can earn interest using this way.