Costco has the following data for 2014 (in million dollars): COSTCO Net sales 11
ID: 2406168 • Letter: C
Question
Costco has the following data for 2014 (in million dollars):
COSTCO
Net sales
112,640
Cost of goods sold
98,458
Accounts payable
8,491
Total inventories
8,456
Accounts receivable
791
What is their inventory flow time?
What is the company’s flow time for accounts payable? How about the flow time for accounts receivable?
What is the average cash-to-cash flow time for Costco in 2014?
COSTCO
Net sales
112,640
Cost of goods sold
98,458
Accounts payable
8,491
Total inventories
8,456
Accounts receivable
791
Explanation / Answer
Inventory Flow Time = 365 * Total Inventories / Cost of Goods Sold
Inventory Flow Time = 365 * $8,456 / $98,458
Inventory Flow Time = 31.35 days
Flow Time for Accounts Payable = 365 * Accounts Payable / Cost of Goods Sold
Flow Time for Accounts Payable = 365 * $8,491 / $98,458
Flow Time for Accounts Payable = 31.48 days
Flow Time for Accounts Receivable = 365 * Accounts Receivable / Net Sales
Flow Time for Accounts Receivable = 365 * $791 / $112,640
Flow Time for Accounts Receivable = 2.56 days
Cash to Cash Flow Time = Flow Time for Accounts Receivable + Inventory Flow Time - Flow Time for Accounts Payable
Cash to Cash Flow Time = 2.56 days + 31.35 days - 31.48 days
Cash to Cash Flow Time = 2.43 days