Question

In: Finance

Suppose that LilyMac Photography has annual sales of $237,000, cost of goods sold of $172,000, average...

Suppose that LilyMac Photography has annual sales of $237,000, cost of goods sold of $172,000, average inventories of $5,200, average accounts receivable of $26,400, and an average accounts payable balance of $7,700.

Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Cash Cycle Days _________

Expert Solution

Cash Cycle days

35.35

Days

Working:

a.

Inventory Turnover ratio

=

Cost of goods sold/Average Inventory

=

$ 1,72,000

/

$ 5,200

=

33.08

b.

Days inventory outstanding

=

365

/

33.08

=

11.03

c.

Receivable Turnover ratio

=

Credit Sales / Average Accounts Receivable

=

$ 2,37,000

/

$ 26,400

=

8.98

d.

Days Sales outstanding

=

365

/

8.98

40.66

e.

Payable turnover ratio

=

Costs of goods sold/Average Accounts payable

=

$ 1,72,000

/

$ 7,700

=

22.34

f.

Days Payable outstanding

=

365

/

22.34

16.34

g.

Cash cycle

=

Days Inventory outstanding + Days sales outstanding - Days Payable outstanding

=

11.03

+

40.66

-

16.34

=

35.35

jeff jeffy answered 2 years ago

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