Sims Electric Corp. has been striving for the last 5 years to improve its manage
ID: 2736942 • Letter: S
Question
Sims Electric Corp. has been striving for the last 5 years to improve its management of working capital. Historical data for the firm's sales, accounts receivable, inventories, and accounts payable follow: Calculate Sims' days of sales outstanding, days of payables outstanding and days of sales in inventory for each of the 5 years. Assume a 365-day year. Calculate Sims' cash conversion cycle for each of the 5 years. Evaluate Sims' overall management of its working capital. Assume a 365-day year. Calculate Sims' days of sales outstanding, days of payables outstanding and days of sales in inventory for each of the 5 years. Assume a 365-day year.Explanation / Answer
Solution : (a)
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Days of sales outstanding (DSO) 54.88 51.82 43.80 38.69 44.05
Days of payable outstanding (DPO) 52.39 54.89 43.80 50.34 68.54
Days of inventory outstanding (DIO) 45.40 42.66 36.81 23.21 10.46
Solution : (b)
Cash conversion cycle (CCC) 47.89 39.59 36.81 11.56 -14.03
CCC is not very much, Instead, it should be used to track a company overtime and to compare the company to its competitors. when tracking overtime, determine CCC several years and look for an improvement.