Question
In: Finance
Marshall Inc. recently hired your consulting firm to improve thecompany's performance. It has been highly...
Marshall Inc. recently hired your consulting firm to improve the company's performance. It has been highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle?
Average inventory = $75,000
Annual sales = $600,000
Annual cost of goods sold = $360,000
Average accounts receivable = $180,000
Average accounts payable = $54,000
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Expert Solution
Please find the answer below.
Statement showing computation:
Cash conversion cycle= Days sale outstanding+ days inventory outstanding- days payable outstanding
Days sale outstanding= 365*Account receivable/sales
Days sale outstanding= 365*180000/600000= 109.5 days
Days inventory outstanding= 365*inventory/cost of goods sold
Days inventory outstanding= 365*75000/360000= 76.04 days
Days payable outstanding= 365*Account payable/cost of goods sold
Days payable outstanding= 365*54000/360000= 54.75 days
Cash conversion cycle= 109.5+76.04-54.75= 130.79
Cash conversion cycle= 130.79 days
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