Question

The simplified balance of the Greek Connection is shown below. It had sales and a cost of goods sold as shown in last rows of the Table.

THE GREEK CONNECTION
Balance Sheet
As of December 31, 2015
(thousands of dollars)
Assets			Liabilities and Equity
Cash	2000		Accounts payable	1500
Accounts receivable	3950		Notes payable	1000
Inventory	1300		Accruals	1220
Total current assets	7250		Total current liabilities	3720
Net plant, property			Long-term debt	3000
and equipment	8500		Total liabilities	6720
Total Assets	15750		Common equity	9030
			Total liabilities and equity	15750
Sales	32000
Cost of Goods Sold	20000

a. Calculate The Greek Connection’s net working capital in 2015.

Answer: the net working capital in 2015 is $. (round to full $, no decimals)

b. Calculate the cash conversion cycle of The Greek Connection in 2015. Assume 365 days/year for b. and c.

Answer: the cash conversion cycle is  days. (round to one decimal)

c. The industry average days sales outstanding ratio is 20 days. What would the cash conversion cycle for The Greek Connection have been in 2015 had it matched the industry average days sales outstanding?

Answer: the cash conversion cycle would be  days. (round to one decimal)

Answer 1

Ans.

a) Calculate The Greek Connection’s net working capital in 2015.

Greek Connection net working capital in 2015 = Total Current Assets - Total Current Liabilities

Greek Connection net working capital in 2015 = $ 7,250 - $ 3,720 = $ 3,530

b) Calculate the cash conversion cycle of The Greek Connection in 2015.

CCC = Days inventory outstanding + Days sales outstanding – Days payable outstanding

= Inventory / ( Cost of Goods Sold / 365 days) + Accounts Receivable / ( Sales / 365 days ) - Accounts Payable / ( Cost of Goods Sold / 365 days)

= $ 1,300 / ( $ 20,000 / 365 ) + $ 3,950 / ($ 32,000 / 365) – $1,500 / ($ 20,000 / 365)

= 23.7 + 45.1 – 27.4

= 41.4 Days

c) The industry average days sales outstanding ratio is 20 days. What would the cash conversion cycle for The Greek Connection have been in 2015 had it matched the industry average days sales outstanding?

CCC = Days inventory outstanding + Days sales outstanding – Days payable outstanding

CCC = 23.7 + 20 – 27.4 = 16.3 Days