Highlight T StrikethroughCalculatorScratch PadZorg Co is a specialist tool manufacturer and has experienced high growth in the pastfew years. Last year's growth in sales volume of 20% is expected to continue into thenext year.Extracts from Zorg Co's latest financial statements for the year just ended areas follows:$m21.2RevenueCost of sales18.3Current assets:Inventory2.4Trade receivables2.9Current liabilities:Bank overdraft0.32.0Trade payablesThe majority of Zorg Co's inventory is work in progress as most of its production ismade to customer order and minimal levels of raw materials are held.Credit purchases from its trade suppliers totalled $16m for the year just ended and onaverage it pays its suppliers after 45 days, rather than 30 days which is the creditterms offered by the suppliers. Purchases and inventory levels grow in line with salesvolume.Zorg Co is forecasting its working capital requirements for the next year and thefollowing changes are expected:(1) Customers are currently taking 50 days on average to pay but Zorg Co isimplement plans over the next year to reduce this by 10 days(2) Zorg Co is being forced by its suppliers to pay according to their terms which willresult in Zorg Co's average payable days being reduced to 30 days(3) The bank overdraft is forecast to increase by $0.9m by the end of the next yearNote: Assume 365 days a year in all calculations.CIWhat is the forecast cash operating cycle for next year (to the nearest day)?days

Working Capital: It is the capital which required by every organization to its routine operational…

anufacturer and has experienced high growth in the past in sales volume of 20% is expected to continue into the financial statements for the year just ended are What is the forecast cash operating cycle for next year (to the nearest day days

anufacturer and has experienced high growth in the past in sales volume of 20% is expected to continue into the financial statements for the year just ended are What is the forecast cash operating cycle for next year (to the nearest day days

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.

Question

Highlight T Strikethrough
Calculator
Scratch Pad
Zorg Co is a specialist tool manufacturer and has experienced high growth in the past
few years. Last year's growth in sales volume of 20% is expected to continue into the
next year.
Extracts from Zorg Co's latest financial statements for the year just ended are
as follows:
$m
21.2
Revenue
Cost of sales
18.3
Current assets:
Inventory
2.4
Trade receivables
2.9
Current liabilities:
Bank overdraft
0.3
2.0
Trade payables
The majority of Zorg Co's inventory is work in progress as most of its production is
made to customer order and minimal levels of raw materials are held.
Credit purchases from its trade suppliers totalled $16m for the year just ended and on
average it pays its suppliers after 45 days, rather than 30 days which is the credit
terms offered by the suppliers. Purchases and inventory levels grow in line with sales
volume.
Zorg Co is forecasting its working capital requirements for the next year and the
following changes are expected:
(1) Customers are currently taking 50 days on average to pay but Zorg Co is
implement plans over the next year to reduce this by 10 days
(2) Zorg Co is being forced by its suppliers to pay according to their terms which will
result in Zorg Co's average payable days being reduced to 30 days
(3) The bank overdraft is forecast to increase by $0.9m by the end of the next year
Note: Assume 365 days a year in all calculations.
CI
What is the forecast cash operating cycle for next year (to the nearest day)?
days

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