Quantitative Problem: Winston Inc. is trying to determine the effect of its inve
ID: 2799099 • Letter: Q
Question
Quantitative Problem: Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $193,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.04 times during the year. Its receivables balance at the end of the year was $13,140.83 and its payables balance at the end of the year was $7,402.16. Using this information calculate the firm's cash conversion cycle. Round your answer to the nearest whole. Round the days amounts in your intermediate calculations to the nearest whole day. Do not round other intermediate calculations. was75%ofsales.ltturnedoveritsininformationcalculate the firm's cash daysExplanation / Answer
Formula to calculate cash conversion cycle is as below:
CCC = Days of Inventory + Days of Receivables - Days of payables
Therefore
Days of Inventory = 365/Inventory turnover ratio
Days of Inventory = 365/8.04 = 45.40 Days
Days of Receivables = 365/Receivables turnover ratio
Receivables turnover ratio = Credit sales/Average Receivables
Receivables turnover ratio = 193000 / 13140.83 = 14.69
Days of Receivables = 365/14.69 = 24.85 Days
Days of payables = 365/Payables turnover ratio
Payables turnover ratio = Purchases / average payables
Payables turnover ratio = 144750 / 7402.16 = 19.56
Days of payables = 365/Payables turnover ratio = 365/19.56 = 18.66 Days
CCC = Days of Inventory + Days of Receivables - Days of payables
CCC = 45.40 + 24.85 - 18.66
CCC = 51.59 Days