Homework Answers
Average collection period = Accounts recievable / sales * 365 = 2 / 25 * 365 = 29.20 days
Payable deferral period = Account payable / cost of goods sold * 365
=[ 1400000 / 2500000*0.6 ] * 365 = 34.07 days
Inventory conversion period = Inventory / Cost of goods sold * 365 = 1 / 15 *365 = 24.33 days
Operating cycle = Average collection period + Inventory conversion period = 29.20 + 24.33 = 53.53 days
Cash conversion cycle = Operating cycle - payable deferral period = 53.53 - 34.07 = 19.46 days
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