Hello,
Please help with this problem using below income and balance sheets.
1) Compute the cash conversion cycle for Costco and Walmart for each of the last 4 years.
1a) Compute the inventory days using "Cost of Revenue" as cost of goods sold and a 365-day year
1b) Compute the accounts receivable days using a 365-day year
1c) Compute the cash conversion cycle for each year
2) How has Walmart's CCC changed over the last few years?
COSTCO
WALMART
Homework Answers
Solution:
1a)
Inventory days=ending inventory/ cost of goods sold *365
Since stmt source date and period end date is the same inventory on that day will be ending inventory. All figures have been rounded to the nearest decimal point
Costco
2015: 32 days
2016: 32 days
2017: 32 days
Walmart
2016: 45 days
2017:44 days
2018:43 days
2019: 42 days
1b
Accounts receivables days= Accounts receivable/ Revenue *365
Costco
2015: 3.845 days
2016: 3.85 days
2017:4.05 days
Walmart
2016:4.26 days
2017:4. 38 days
2018: 4.09 days
2019: 4.46 days
1c)
Cash conversion cycle= Days of sale outstanding+ days of inventory outstanding-days of payables outstanding
Days of sale outstanding= accounts receivable days
Days of inventory outstanding= Inventory days
Days of payable outstanding=accounts payable/ COGS *365
Costco
2015:3.3 days
2016:8.85 days
2017:4.7 days
Walmart
2016: 9.818 days
2017: 5.587 days
2018: 1.404 days
2019: 1.474 days
2)
Walmart's CCC has consistently improved over the past few years. Lower the CCC the better it is.
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