Consider the case of slack Sheep B Black Sheep Broadcasting Company is a mature
ID: 1172722 • Letter: C
Question
Consider the case of slack Sheep B Black Sheep Broadcasting Company is a mature fm that has a stable flow of business. The following data was taken from its financial stabements last year Annual sales Cost of goods sold $6,175,000 Inventory Accounts receivable $2,100,000 Accounts payable $2,500,000 $9,500,000 $3,200,000 Black Sheep Droadcasting's?lsintarested in ermining the 1 ngth of timefunds aro tied up in working apital use the information in the preceding table to complete the following table. (Note: use 365 days as the length of a year In all caloulations, and round all values to two decimal places) Value Average collection period ables Deferral ??od Cash conversion cyde Both the inventory conversion perlod and payables deferral period use the average daily COGS in their denaminatos, whereas the average collection period uses average dely sales in its denominator. why do these measures use dffurent inputs? recorded ot the price at which goods are sold. O Curnent essets should be divided by sales, but current Sablities should be divided by the coGs ts there penerally a positive or negative relationship between net working capital and the cash conversion cyde? (in other words, if a firm has a high level of net working capital, is t iely to heve a high or low cash convension cyde) O There is a positive relationship bet ween net working cepital and the cash convesion O working capital and the cesh conversion cyde cyde mere is negative relationship between net The management at Black Sheep broadcasting management. one of the finance team members presents the following case to hs Company wants to continue its internat dscussions related to its cash cohorts: Which of the following responses to the CrOYs O The Cro is not toking into account the ts suppliers. Generailly, there is a Case in Discussion statement is most accurate? amount of time the companty has to pay Happy Turtle Transporters's management plans to finance its eperations with bank loans that will be repaid ssoon as cash is available. The company's management espects that it wil take 40 days to manufacture and sell its products and 35 days to receive payment from its customers Heppy Tutle's CFO Pas told the rest of the management team that they shouid expect the length of the bank loens to be approxcmately 75 days cash for them. The Cro can reduce the estimated length of the bank loen Dy this amount of time the bank loans should be accurate because it wil take 7s deys for the company to manufacture, sell, and eoliect cash for ts goods Al these things must occu for the companyExplanation / Answer
1-
Inventory conversion period
365/inventroy turnover ratio
189.1498
Inventory turnover ratio
cost of goods sold/average inventory
6175000/3200000
1.93
2-
average collection period
4.52381
accounts receivable turnover ratio
sales/accounts receivables
80.68421
3-
payment defferel period
365/accounts payable turnover ratio
147.7733
accounts payable turnover ratio
cost of goods sold/accounts receivables
2.47
Inventory conversion
189
average collection period
81
payment deferrel peiod
148
cash conversion cycle
122
Inventory and accounts payables are carried at cost at balance sheet whereas accounts receivables are recorded at the price at which goods are sold
There is a positive relation between net working capital and cash conversion cycle
First one is correct
1-
Inventory conversion period
365/inventroy turnover ratio
189.1498
Inventory turnover ratio
cost of goods sold/average inventory
6175000/3200000
1.93
2-
average collection period
4.52381
accounts receivable turnover ratio
sales/accounts receivables
80.68421
3-
payment defferel period
365/accounts payable turnover ratio
147.7733
accounts payable turnover ratio
cost of goods sold/accounts receivables
2.47
Inventory conversion
189
average collection period
81
payment deferrel peiod
148
cash conversion cycle
122
Inventory and accounts payables are carried at cost at balance sheet whereas accounts receivables are recorded at the price at which goods are sold
There is a positive relation between net working capital and cash conversion cycle
First one is correct