Question

Use the following information to calculate the Cash Conversion Cycle for this company:

	Year 1	Year 2
Annual Credit Sales		8
COGS		43
Accounts Receivable	$2	4
Inventory	$8	10
Inventory Purchases		47
Accounts payable	$7	9

Round your answer to 2 decimals, for example 100.12.

Answer 1

Cash conversion cycle = Days inventory outstanding + Days sales outstanding + Days payable outstanding

Days inventory outstanding = (Average inventory/Cost of goods sold) * 365

Average inventory = (8+10+47)/2 = 32.5

Days inventory outstanding = (32.5/43) * 365 = 275.8721

Days sales outstanding = (Average accounts receivables / Total credit sales) * 365

Average accounts receivables = (2+4)/2 = 3

Days sales outstanding = (3/8) * 365 = 136.8750

Days payable outstanding = (Average accounts payable / cost of goods sold) * 365

Average accounts payable = (7+9)/2 = 8

Days payable outstanding = (8/43)*365 = 67.9070

Cash conversion cycle = 275.8721 + 136.8750 + 67.9070 = 480.65 days

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