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# Calculations for Cash Conversion Cycle

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Cash Conversion Cycle

This assignment contains two parts: Part I and Part II.

Part I

Assume that a company has \$20 million in revenue and its cost of goods sold is 70% of its sales. Additionally, the firm has \$3 million of inventories, \$2 million in payables, and \$2 million in receivables. What's the firm's cash conversion cycle (CCC)? What does this indicate? Do you think that the company should improve its CCC? If so, what are some ways that it can do that? If not, why do you think that's the case?

Part II

Assume that a firm has a payables deferral period of 40 days, an inventory conversion period of 62 days, and an average collection period of 29 days.

What's the firm's cash conversion cycle?
Assume that all of the firm's sales are on credit. If the firm has annual sales of \$4 million, what's the accounts receivable investment?
How many times a year will the firm turn over its inventory?

#### Solution Summary

The solution has detailed step by step calculations for questions involving cash conversion cycles.

\$2.19

## Calculate Cash Conversion Cycle; determine net cash from operating activities

Cash Conversion Cycle. Calculate the accounts receivable period, accounts payable period, inventory period, and cash conversion cycle for the following firm:

Income statement data:

Sales 5,000
Cost of goods sold 4,200
Balance sheet data:
Beginning of Year End of Year
1. Inventory 500 600
2. Accounts receivable 100 120
3. Accounts payable 250 290

Determine the following:

4. If assets are \$7,000 and capital is \$2,000, what are liabilities?
5. If capital is \$17,000 and liabilities are \$8,000, what are assets?

Cash Flow Statement

Use the following balance sheet information and other data to determine net cash from operating activities:

December 31, 2000 December 31, 2001
Account Receivable \$ 4,000 \$ 7,000
Merchandise Inventory 10,000 8,000
Prepaid Insurance 1,000 700
Accounts Payable 12,000 6,000
Rent Payable 9,000 16,000
Dividend Payable 2,000 2,500
Bonds Payable 50,000 40,000

Other Data:
Net Income \$25,000
Depreciation Expense 5,000
Amortization of Goodwill 3,000