Question

1. In 2016, Syntax Corp has average inventory of $5 million, average receivable of $3 million, and average payable of $2 million. It had sales of $20 million and cost of goods sold of $15 million. a) What's inventory period, receivable period and payable period? b) What's the operating cycle and cash cycle?

Answer 1

Answer of Part a:

Inventory Period = 365 days * Average Inventory / Cost of Goods Sold
Inventory Period = 365 * $5,000,000 / $15,000,000
Inventory Period = 121.67 days

Receivable Period = 365 days * Average Receivable / Sales
Receivable Period = 365 * $3,000,000 / $20,000,000
Receivable Period = 54.75 days

Payable Period = 365 days * Average Payable / Cost of Goods Sold
Payable Period = 365 * $2,000,000 / $15,000,000
Payable Period = 48.67 days

Answer of Part b:

Operating Cycle = Inventory Period + Accounts Receivable Period
Operating Cycle = 121.67 days + 54.75 days
Operating Cycle = 176.42 days

Cash Cycle = Inventory Period + Receivable Period – Payable Period
Cash Cycle = 121.67 days + 54.75 days – 48.67 days
Cash Cycle = 127.75 days