Sims Electric Corp. has been striving for the last 5 years to improve its manage
ID: 2764043 • Letter: S
Question
Sims Electric Corp. has been striving for the last 5 years to improve its management of workin. 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 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. (Round to two decimal places.)Explanation / Answer
a.Days sales outstanding = Accounts receivable/ Net credit sales * 365
Days sales outstanding for 2010 = 401/2851*365 = 51.34 days
Days sales outstanding for 2011 = 535/3431 *365 = 56.91 days
Days sales outstanding for 2012 = 736/5246 *365 = 51.21 days
Days sales outstanding for 2013 = 904/7780 *365 = 42.41 days
Days sales outstanding for 2014= 1455/12353 *365 = 42.99 days
Days payables outstanding = Account payables/ Cost of goods * 365
Days payables outstanding for 2010= 271/(0.7*2851)* 365 = 49.38 days
Days payables outstanding for 2011= 443/(0.7*3431)* 365 = 67.33 days
Days payables outstanding for 2012= 452/(0.7*5246)* 365 = 44.93 days
Days payables outstanding for 2013= 1035/(0.7*7780)* 365 = 69.37 days
Days payables outstanding for 2014= 1649/(0.7*12353)* 365 = 69.61 days
Days In inventory = Avg. Invetory/Cost of goods sold * 365
Days in inventory for 2010= 244/(0.7*2851)*365 = 42.80days
Days in Inventory for 2011 = 313/(0.7*3431)*365 = 47.57 days
Days in Inventory for 2012 = 431/(0.7*5246)*365 = 42.84 days
Days in Inventory for 2013 = 240/(0.7*7780)*365 = 16.09 days
Days in Inventory for 2014 = 254/(0.7*12353)*365 = 10.72 days
b. Cash conversion cycle = DIO + DSO - DPO
Cash conversion cycle for 2010 = 42.80 + 51.34 -49.38 =44.76 days
Cash conversion cycle for 2011 = 47.57 + 56.91 – 67.33 =37.15 days
Cash conversion cycle for 2012 = 42.84 + 51.21 – 44.93 =49.12days
Cash conversion cycle for 2013 =16.09 + 42.41 - 69.37 = -10.87 days
Cash conversion cycle for 2014 = 10.72 + 42.99 -69.61 = -15.9 days