In: Finance
Quantitative Problem: Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $181,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.43 times during the year. Its receivables balance at the end of the year was $13,171.01 and its payables balance at the end of the year was $7,404.13. Using this information calculate the firm's cash conversion cycle. Round your answer to the nearest whole. Round the days amounts in your intermediate calculations to the nearest whole day. Do not round other intermediate calculations. how many days? |
days of inventory on hand = number of days in a year/inventory turnover |
days of inventory on hand = 365/8.43 |
days of inventory on hand = 43.3 |
Receivables turnover = Credit sales/receivables |
Receivables turnover = 181000/13171.01 |
Receivables turnover = 13.74 |
days of sales outstanding = number of days in a year/receivables turnover |
days of sales outstanding = 365/13.74 |
days of sales outstanding = 26.56 |
COGS = 0.75*sales = 0.75*181000 = 135750 |
Accounts payables turnover = COGS/payables |
Accounts payables turnover = 135750/7404.13 |
Accounts payables turnover = 18.33 |
days of payables outstanding = number of days in a year/accounts payable turnover |
days of payables outstanding = 365/18.33 |
days of payables outstanding = 19.91 |
Operating cycle = days of sales outstanding + days of inventory on hand |
Operating cycle = 26.56+43.3 |
Operating cycle = 69.86 |
Cash conversion cycle = Operating cycle - days of payables outstanding |
Cash cycle = 69.86-19.91 |
Cash cycle = 49.95 = 50 days |