Question

In: Finance

Suppose that LilyMac Photography has annual sales of $221,000, cost of goods sold of $156,000, average...

Suppose that LilyMac Photography has annual sales of $221,000, cost of goods sold of $156,000, average inventories of $6,400, average accounts receivable of $28,800, and an average accounts payable balance of $19,100. 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. Round your final answer to 2 decimal places.)

Solutions

Expert Solution

Cash Cycle = Days Inventory outstanding + Days sales outstanding - Days Payable Outstanding
=         14.97 +                 47.57 -         44.69
=         17.85 Days
Working:
a. Inventory turnover = Cost of goods sold/Average inventory
= $       1,56,000 / $       6,400
=                 24.38 days
b. days inventory outstanding = 365 /         24.38
=           14.97
c. receivable Turnover = Net credit sales /Average Accounts receivable
= 221000 / 28800
=              7.67
d. Days sales outstanding = 365 /           7.67
=           47.57
e. Payable turnover = Cost of goods sold/Average Accounts Payable
= $ 1,56,000 / 19100
=              8.17
f. Days payable outstanding = 365 /           8.17
=           44.69

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