Question

Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $123,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.22 times during the year. Its receivables balance at the end of the year was $13,125.85 and its payables balance at the end of the year was $7,395.59. Using this information calculate the firm's cash conversion cycle. Do not intermediate calculations. Round your answer to the nearest whole number.

Answer 1

Cash Conversion Cycle = DIO + DSO – DPO	54.09
Days Inventory Outstanding (DIO)	(Average Inventory / Cost of Goods Sold) *365
=	44.40
Days Sales Outstanding (DSO)	(Average Accounts Receivable / Total Credit Sales) *365
=	38.95
Days Payable Outstanding (DPO)	(Average Accounts Payables / Cost of Goods Sold) *365
=	29.26
Total Credit Sales	123000
Cost of Goods Sold (75% of Total Sales)	92250
Average Inventory (See note below)	11,222.63
Average Accounts Receivable	13,125.85
Average Accounts Payable	7,395.59
Inventory Turnover Ratio	8.22
Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
	8.22= 92250/Average Inventory
	92250/8.22
	11,222.63

Hope you understood.

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