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Calculations for Cash Conversion Cycle

Cash Conversion Cycle

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

Answer these questions in Word and show your work:

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?

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Solution Summary

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