Question

Calculate the cash cycle based on the following information:

Sales = $146,625
COGS = $29,097
Inventory = $10,853
Accounts Receivable = $35,971
Accounts Payable = $10,456

Enter your answer rounded off to two decimal points.

Answer 1

Inventory turnover = COGS/inventory

Inventory turnover = 29097/10853

Inventory turnover = 2.68

days of inventory on hand = number of days in a year/inventory turnover

days of inventory on hand = 365/2.68

days of inventory on hand = 136.19

Receivables turnover = Credit sales/receivables

Receivables turnover = 146625/35971

Receivables turnover = 4.08

days of sales outstanding = number of days in a year/receivables turnover

days of sales outstanding = 365/4.08

days of sales outstanding = 89.46

Accounts payables turnover = purchases/payables

Accounts payables turnover = 29097/10456

Accounts payables turnover = 2.78

days of payables outstanding = number of days in a year/accounts payable turnover

days of payables outstanding = 365/2.78

days of payables outstanding = 131.29

Operating cycle = days of sales outstanding + days of inventory on hand

Operating cycle = 89.46+136.19

Operating cycle = 225.65

Cash conversion cycle = Operating cycle - days of payables outstanding

Cash cycle = 225.65-131.29

Cash cycle = 94.36