Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have an age of 76 days, and accounts receivable are collected in 37 days. Accounts payable are paid approximately 31 days after they arise. The firm has annual sales of about $30 million. Cost of goods sold are $21 million, and purchases are $14 million. a. Calculate the firm's operating cycle. b. Calculate the firm's cash conversion cycle. c. Calculate the amount of resources needed to support the firm's cash conversion cycle. d. Discuss how management might be able to reduce the cash conversion cycle. a. American Products' operating cycle, OC, is days. (Round to the nearest whole number.)
Cash conversion cycle American Products is concerned about managing cash efficiently. On the average, inventories have an age of 76 days, and accounts receivable are collected in 37 days. Accounts payable are paid approximately 31 days after they arise. The firm has annual sales of about $30 million. Cost of goods sold are $21 million, and purchases are $14 million. a. Calculate the firm's operating cycle. b. Calculate the firm's cash conversion cycle. c. Calculate the amount of resources needed to support the firm's cash conversion cycle. d. Discuss how management might be able to reduce the cash conversion cycle. a. American Products' operating cycle, OC, is days. (Round to the nearest whole number.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:**Cash Conversion Cycle**
American Products is concerned about managing cash efficiently. On average, inventories have an age of 76 days, and accounts receivable are collected in 37 days. Accounts payable are paid approximately 31 days after they arise. The firm has annual sales of about $30 million. Cost of goods sold are $21 million, and purchases are $14 million.
a. Calculate the firm's *operating cycle*.
b. Calculate the firm's *cash conversion cycle*.
c. Calculate the amount of resources needed to support the firm's cash conversion cycle.
d. Discuss how management might be able to reduce the cash conversion cycle.
a. American Products' operating cycle, OC, is ⬜ days. *(Round to the nearest whole number.)*
Expert Solution
Step 1: Formulas.
According to bartleby guidelines , if question invoves multiple sub parts , then 1st sub 3 parts needs to be answered.
Accordingly , we have solved 1st sub 3 parts for you.
1.firm’s operating cycle = DIO + DSO
2.firm’s cash conversion cycle = DIO+DSO-DPO
where
DIO = days inventory outstanding
DSO= days sales outstanding
DPO = days payables outstanding
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