Question
In: Accounting
You are reviewing the company’s working capital investment for the past three years.(17 marks) 2014 2015...
You are reviewing the company’s working capital investment for the past three years.
|
2014 |
2015 |
2016 |
2017 |
|
|
sales |
1285000 |
1544000 |
1850000 |
2405000 |
|
Cost of sales |
579000 |
803000 |
1019500 |
1445000 |
|
inventory |
68000 |
83650 |
97750 |
118800 |
|
debtors |
158750 |
198500 |
253010 |
349900 |
|
creditors |
58700 |
91100 |
125690 |
198068 |
Calculate and comment on the cash conversion cycle for 2015,2016,2017
Solutions
Expert Solution
| 2014 | 2015 | 2016 | 2017 | |
| Sales (i) | 1285000 | 1544000 | 1850000 | 2405000 |
| Cost of Sales (ii) | 579000 | 803000 | 1019500 | 1445000 |
| Inventory (iii) | 68000 | 83650 | 97750 | 118800 |
| Debtors (iv) | 158750 | 198500 | 253010 | 349900 |
| Creditors (v) | 58700 | 91100 | 125690 | 198068 |
| Average Inventory (Note 1) (vi) | 75825 | 90700 | 108275 | |
| Days Inventory Outstanding {(vi)*360/(ii) [A] | 33.99 | 32.03 | 26.98 | |
| Average Debtors (Note 2) (vii) | 178625 | 225755 | 301455 | |
| Days Sales Outstanding {(vii)*360/(i)} [B] | 41.65 | 43.93 | 45.12 | |
| Average Creditors (Note 3) (viii) | 74900 | 108395 | 161879 | |
| Days Payables Outstanding {(viii)*360/(ii)} [C] | 33.58 | 37.68 | 40.33 | |
| Cash Conversion Cycle [A+B-C] | 42.06 | 37.68 | 31.77 |
Comments:
Cash Conversion Cycle (CCC) assesses how efficiently the company is managing its own working capital.
The CCC for the company has been decreasing from 2015 to 2017 consistently. This means that the Operating Efficiency of the company has been increasing over the years, the working capital available with the company has been used with an increased efficiency over these 3 years. This is a good sign for the company and indicates the good operating health of the company.
Working Notes:
Note 1: Average Inventory
2015 = (68000+83650)/2 = 75825
2016 = (83650+97750)/2 = 90700
2017 = (97750+118800)/2 = 108275
Note 2: Average Debtors
2015 = (158750+198500)/2 = 178625
2016 = (198500+253010)/2 = 225755
2017 = (253010+329900)/2 = 301455
Note 3: Average Creditors
2015 = (58700+91100)/2 = 74900
2016 = (91100+125690)/2 = 108395
2017 = (125690+198068)/2 = 161879
Note 4: For easier calculations, the total number of days in a year has been taken as 360, and the results have been rounded off to the closest decimal places.
ekkarill92 answered 1 year agoRelated Solutions
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