Question

In: Finance

Alta Custom Inc. has $5 million of inventory and $2 million of accounts receivable. Its average...

Alta Custom Inc. has $5 million of inventory and $2 million of accounts receivable. Its average daily sales are $120,000. The company’s payables deferral period (accounts payable divided by daily purchases) is 31 days. What is their cash conversion cycle?

Solutions

Expert Solution

Answer:
Days Inventory Outstanding = Inventory / Average Daily Sales
Days Inventory Outstanding = $5,000,000 / $120,000
Days Inventory Outstanding = 41.67 days

Days Sales Outstanding = Accounts Receivable/ Average Daily Sales
Days Sales Outstanding = $2,000,000 / $120,000
Days Sales Outstanding = 16.67 days

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding – Days Payable Outstanding
Cash Conversion Cycle = 41.67 + 16.67 – 31
Cash Conversion Cycle = 27.34 days



Related Solutions

Alta Custom Inc. has $5 million of inventory and $2 million of accounts receivable. Its average...
Alta Custom Inc. has $5 million of inventory and $2 million of accounts receivable. Its average daily sales are $120,000. The company’s payables deferral period (accounts payable divided by daily purchases) is 31 days. What is their cash conversion cycle?
Siren Inc. has annual sales of $75,000,000, its average inventory is $20,000,000, and its average accounts...
Siren Inc. has annual sales of $75,000,000, its average inventory is $20,000,000, and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days, and it pays on time. The firm is searching for ways to shorten the cash conversion cycle. If sales can be maintained at existing levels while lowering inventory by $4,000,000 and accounts receivable by $2,000,000, by how many days would the cash conversion cycle be changed? Use a 365-day...
Siren Inc. has annual sales of $75,000,000, its average inventory is $20,000,000, and its average accounts...
Siren Inc. has annual sales of $75,000,000, its average inventory is $20,000,000, and its average accounts receivable is $16,000,000. The firm buys all raw materials on terms of net 35 days, and it pays on time. The firm is searching for ways to shorten the cash conversion cycle. If sales can be maintained at existing levels while lowering inventory by $4,000,000 and accounts receivable by $2,000,000, by how many days would the cash conversion cycle be changed? Use a 365-day...
Pasta Shop has sales of $315,000, average accounts receivable of $32,000, average inventory of $28,000 and...
Pasta Shop has sales of $315,000, average accounts receivable of $32,000, average inventory of $28,000 and average accounts payable of $24,000. The cost of goods sold is equivalent to 70 percent of sales. What is the operating cycle? What is the cash cycle?
Natcher Corporation’s accounts receivable at the end of Year 2 was $148,000 and its accounts receivable...
Natcher Corporation’s accounts receivable at the end of Year 2 was $148,000 and its accounts receivable at the end of Year 1 was $156,000. The company’s inventory at the end of Year 2 was $151,000 and its inventory at the end of Year 1 was $143,000. Sales, all on account, amounted to $1,404,000 in Year 2. Cost of goods sold amounted to $822,000 in Year 2. The company’s operating cycle for Year 2 is closest to: (Round your intermediate calculations...
BuildemBig, Inc. has $10,000 in their bank account, $25,000 in inventory, $35,000 in accounts receivable, $15,000...
BuildemBig, Inc. has $10,000 in their bank account, $25,000 in inventory, $35,000 in accounts receivable, $15,000 in payables, and $2,000 in accrued wages. a. What is their net working capital?
Snow Man Inc. has accounts receivable of $4,500, inventory of $1,800, sales of $135,000, and cost...
Snow Man Inc. has accounts receivable of $4,500, inventory of $1,800, sales of $135,000, and cost of goods sold of $64,000. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit? (i.e. Inventory Holding Period +  Days' sales in receivables) 10.27 days 18.67 days 14.50 days 22.43 days 12.17 days
High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable...
High Inc. has an accounts receivable turnover ratio of 7.3. Low Company has an accounts receivable turnover ratio of 5. Assuming that High and Low have the same sales​ level, which of the following statements is​ correct? A. Low Company has​ (on average) a lower accounts receivable balance than does High. B. ​Low's average collection period is less than​ High's. C. ​High's average collection period is less than​ Low's. D. High has a higher accounts receivable balance on average than...
The Mountain Top Shoppe has sales of $512,000, average accounts receivable of $31,400 and average accounts...
The Mountain Top Shoppe has sales of $512,000, average accounts receivable of $31,400 and average accounts payable of $24,800. The cost of goods sold is equivalent to 71 percent of sales. How long does it take The Mountain Top Shoppe to pay its suppliers? HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100. Sales for the period were $610,000 and costs of goods sold were $458,000. What is the average...
Aphorisms Inc. has an expected cash inflow of €1 million on an accounts receivable balance due...
Aphorisms Inc. has an expected cash inflow of €1 million on an accounts receivable balance due in six months. The owner, Laozi, wants to hedge this exposure with an option contract at a strike price of KCNY/EUR = 8.00 CNY/EUR and with a due date in 6 months. At this strike price, call option and put option prices are, respectively, CallCNY/EUR = 1.00 CNY/EUR and PutCNY/EUR = 2.00 CNY/EUR. Graph the following positions (a–c) on the figure below. a. The...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT