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Calculating Cycles Consider the following financial statement information for the Hop Corporation: Beginning Inventory $16,284 Beginning...

Calculating Cycles
Consider the following financial statement information for the Hop Corporation:

Beginning Inventory $16,284
Beginning Accounts receivable 11,219
Beginning Accounts payable 13,960
Ending Inventory $19,108
Ending Accounts receivable 13,973
Ending Accounts payable 16,676
Net sales $219,320
Cost of goods sold 168,420

Calculate the operating and cash cycles. How do you interpret your answer?

Show all steps and formula. Don't round off calculations.

Expert Solution

Average inventory = Beginning value + Ending value / 2

= 16,284 + 19,108 / 2

= 35,392 / 2

= $17,696

Average receivable = Beginning value + Ending value / 2

= 11,219 + 13,973 /2

= 25,192 / 2

= $12,596

Average payable = Beginning value + Ending value / 2

= 13,960 + 16,676 / 2

= 30,636 / 2

= $15,313

Days of inventory outstanding = Average inventory / Cost of goods sold × 365

= 17,686 / 168,420 × 365

= 0.105 × 365

= 38.329 days

Days of receivable outstanding = Average receivable / sales × 365

= 12,596 / 219,320 × 365

= 0.0574 × 365

= 20.951 days

Days of payable outstanding = Average payable / cost of goods sold × 365

= 15,313 / 168,420 × 365

= 0.0909 × 365

= 33.1785 days

Operating Cycle = Days of inventory outstanding + Days of receivable outstanding

= 38.339 + 20.951

= 59.29 days

It takes 59.29 days for the firm to make and sell goods , also receive cash from the consumer.

Cash Conversion Cycle = Operating cycle - Days of payable outstanding

= 59.29 - 33.1785

= 26.1115 days

It takes 26.1115 days for the firm to convert investment into inventory and inventory to cash.

jeff jeffy answered 1 month ago

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