Question

1. Consider the following financial statement information for the Bulldog Icers Corporation:

Item	Beginning	Ending
Inventory	$   7,281	$   9,318
Accounts Receivable	$   4,814	$   5,108
Accounts payable	$   6,623	$   7,415
Net Sales	$ 65,180
Cost of goods sold	$ 51,912

Calculate the operating and cash cycles. How do you interpret your answer?

Answer 1

Inventory turnover = Cost of goods sold / Average inventory = $51,912 / [($7,281 + $ 9,318)/2] = $51,912 / $8,299.5 = 6.25 times

Days inventory outstanding = 365 days / 6.25 = 58.4 days

Accounts receivable turnover = Credit sales / average accounts receivables = $65,180 / [($4,814 + $5,108)/2] = 13.14 times

Days sales outstanding = 365 days / 13.14 = 27.78

Accounts payable turnover = Cost of goods sold / average accounts payable = $51,912 / [($6,623 + $7,415)/2] = 7.40

Days payable outstanding = 365/7.40 = 49.32 days

Cash cycle = Operating cycle - Days payable outstanding

Operating cycle = Days inventory outstanding + Days sales outstanding = 58.4 days + 27.78 days = 86.18 days

Cash cycle = 86.18 days - 49.32 days = 36.86 days

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