The 2018 and 2019 balance sheets for NW Stone Supply showed Cash of $ 6 comma 100 and $ 7 comma 600 respectively, Accounts Receivable of $ 15 comma 000 and $ 18 comma 000, respectively, Inventory of $ 13 comma 500 and $ 10 comma 500, respectively, and Accounts Payable of $ 4 comma 600 and $ 7 comma 600, respectively. Its 2019 Income Statement showed Net Sales of $ 113 comma 000, Cost of Goods Sold of $ 53 comma 000, and Net Income of $ 33 comma 000. What is the cash conversion cycle for 2019? (Assume all Sales are credit sales. Round any intermediary calculations to two decimal places and your final answer to the nearest day.)

Cash coversion cycle is 93.93 days

Explanation:

We have average:

+ Account receivable = $16,500; Inventory = $12,000; Account Payable = $6,100

Calculation of related conversion cycles:

Days inventory outstanding = Average inventory/COGS x 365  = (12,000/53,000) x 365 = 82.64 days

Days sales outstanding = Average receivable / Net sales x 365 = 16,500/113,000 x 365 = 53.30 days

Days payable outstanding = Average payable / COGS x 365 = 6,100/53,000 x 365 = 42.01 days

=> Cash conversion cycle = Days inventory outstanding + Days sales outstanding - Days payable outstanding = 82.64 + 53.30 - 42.01 = 93.93 days

Cash Conversion Cycle is approximately 94 days.

Explanation: The Cash Conversion Cycle is a cycle where the company purchases inventory, sells the inventory on credit, and collects the accounts receivable and turns them into cash.

Cash Conversion Cycle = Days of Sales Outstanding (DSO) + Days of Inventory Outstanding (DIO) - Days of Payables Outstanding (DPO)

DSO = [(BegAR + EndAR) / 2] / (Revenue / 365) =(( 15000 + 18000)/2)/( 113000/365) = 16500/309.59 = 53.30

DIO = [(BegInv + EndInv / 2)] / (COGS / 365) = ((13500 + 10500)/2)/(53000/365) = 12000/ 145.21 = 82.64

DPO = (Average Accounts payables/ Cost of goods sold) × 365 days =( 6100 / 53000) × 365 = 42

CCC = DSO + DIO – DPO

=53.30 + 82.64 - 42 = 93.94

Approximately 94 days.

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