Question
In: Finance
The financial information for Pear Company is provided below: Sales $2.8 million Cost of goods sold...
The financial information for Pear Company is provided below:
Sales $2.8 million
Cost of goods sold $2.3 million
Purchases $2.1 million
Average receivables $0.6 million
Average inventory $0.5 million
Average payables $0.2 million
The company's cash conversion cycle is closest to:
Select one:
A. 114 days
B. 122 days
C. 192 days
D. 129 days
Solutions
Expert Solution
B. 122 Days
| Step-1:Calculation of receiveble, inventory and payable turnover | ||||||
| Receivable Turnover | = | Sales | / | Average receivable | ||
| = | 2.8 | / | 0.6 | |||
| = | 4.67 | |||||
| Inventory turnover | = | Cost of goods sold | / | Average Inventory | ||
| = | 2.3 | / | 0.5 | |||
| = | 4.60 | |||||
| Payable turnover | = | Purchase | / | Average payable | ||
| = | 2.1 | / | 0.2 | |||
| = | 10.50 | |||||
| Step-2:Calculation of cash conversion cycle | ||||||
| Cash Conversion Cycle | = | Days Sales outstanding | + | Days Inventory Outstanding | - | Days payable outstanding |
| = | 78.16 | + | 79.35 | - | 34.76 | |
| = | 122.74 days | |||||
| Working: | ||||||
| Days sales outstanding | = | Days in a year | / | Receivable Turnover | ||
| = | 365 | / | 4.67 | |||
| = | 78.16 | |||||
| Days inventory outstanding | = | Days in a year | / | Inventory Turnover | ||
| = | 365 | / | 4.60 | |||
| = | 79.35 | |||||
| Days payable outstanding | = | Days in a year | / | Payable Turnover | ||
| = | 365 | / | 10.50 | |||
| = | 34.76 |
jeff jeffy answered 2 years agoRelated Solutions
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