Question

The balance sheet and income statement for Rocket Corporation are as follows:                                                                      
                                    Balance Sheet as of December 31, 2019                                                       
                                                                                   
ASSETS                                                                         LIABILITIES & EQUITY             

Cash & marketable sec.          $3,500             Accounts payable                    $38,000
Accounts Receivable               47,000             Taxes payable                         9,000
Inventory                                 13,000             Short-term borrowings           20,500
Total current assets                $63,500           Total current liabilities           $67,500
                       
Net P,P & E                              $452,000         Long-term debt                       $200,000
                                                                        Total liabilities                        $267,500
                                                                        Common stock at par             $80,000
                                                                        Additional paid-in capital       $45,000
                                                                        Retained earnings                   $123,000
TOTAL ASSETS                         $515,500         TOTAL LIABILITIES & EQUITY $515,500
                       
Income Statement for the year ending December 31, 2019                                                                                                                         
Sales                                                    $750,000                                
Cost of goods sold                               540,000                                  
Gross profit                                         $210,000                                
S, G & A                                               115,000                                  
Operating profit                                  $95,000                                  
Interest expense                                 14,994                                    
Earnings b4 tax                                   $80,006                                  
Income tax                                          20,002                                    
Net Income                                         $60,005                                  
                                                                                   
Rocketʹs stock was selling for $7 a share at the end of 2019, and there were 95 thousand shares outstanding. Rocket paid dividends of $0.5 a share in 2019           . Calculate Rocketʹs Cash Conversion Cycle for 2019.   

Answer 1

Solution: DSO = ACCOUNT RECEIVABLE * 365 / CREDIT SALE | 47000* 365/750000 DIO = INVENTORY * 365 / COGS 13000*365/540000 DPO = ACCOUNT PAYABLE * 365/COGS 38000*365/540000 22.87 8.79 25.69 5.98 days cash conversion cycle = DSO + DIO - DPO 22.87+8.79-25.69 DSON DION DPO= Days sales outstanding days inventory outstanding days payables outstanding