Charlie Company The Balance Sheet and Income Statement of Charlie Company as of

ID: 2789962 • Letter: C

Question

Charlie Company The Balance Sheet and Income Statement of Charlie Company as of and for the twelve months ended December 31, 2016 shows the following information (in thousands): Opening (Prior Period) and Ending balances Accounts Receivable Opening $4,155, Ending. $4,650 Accounts Payable Opening $5,200, Ending $5,750 Inventory Opening $2,150, Ending 3,150 Sales on Credit (12months) $47,450 Cost of Goods Sold (COGS) (12 months) 35,100

Utilizing the information in question 1 for Charlie Company, what was the full cash conversion cycle for the company in 2016? Hint: You will first need to calculate the Days Payables Outstanding - again round up to whole number of days.

Explanation / Answer

Cash conversation cycle is a measure of the time from paying suppliers for materials to collecting cash from the subsequent sale of goods produced from these supplies. It consists of the number of days of inventory plus number of days of receivables minus the number of days of payables

Cash cycle=Number of days of Inventory + Number of Days of Receivable –Number of days of payable

Opening

closing

Average

Inventory

2150

3150

2650

Account receivable

4155

4650

4402.5

Account Payable

5200

5750

5475

Number of days of inventory=365/COGS × Average Inventory

Number of days of inventory= 365/35100 ×2650

Number of days of inventory=27.56 Days

Number of days of receivable=365/sales ×Average receivable

Number of days of receivable=365/47450 × 4402.5

Number of days of receivable=33.87 Days

Number of days of payables=365/COGS × Average payable

Number of days of payables= 365/35100 ×5475

Number of days of payables=56.93 Days