Firm's investment in accounts receivable
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The Hamlin Corporation has an inventory conversion period of 60 days, a receivables collection period of 30 days, and a payables deferral period of 30 days. Its annual credit sales are $5,000,000, and its annual cost of goods sold (COGS) is 60% of sales.
a. What is the length of the firm's cash conversion cycle?
b. What is the firm's investment in accounts receivable?
c. What is the company's inventory turnover ratio?
d. Identify three ways in which the company could reduce its cash conversion cycle? What are the possible risks of reducing it?
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Solution Summary
This solution explains a series of questions regarding the conversion cycle of a firm's investments, length of cash conversion cycle, investments in accounts receivable, and what is in the inventory turnover ratio.
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a. What is the length of the firm's cash conversion cycle?
Cash conversion cycle is period take to convert raw material into sales after taking care of credit period given by suppliers to us.
As per investopedia, "Cash conversion cycle represents time taken for a company to convert resource inputs into cash flows. "
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