question archive Libscomb Technologies' annual sales are $5,625,005 and all sales are made on credit, it purchases $4,249,451 of materials each year (and this is its cost of goods sold)
Libscomb Technologies' annual sales are $5,625,005 and all sales are made on credit, it purchases $4,249,451 of materials each year (and this is its cost of goods sold)
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Libscomb Technologies' annual sales are $5,625,005 and all sales are made on credit, it purchases $4,249,451 of materials each year (and this is its cost of goods sold). Libscomb also has $524,461 of inventory, $539,307 of accounts receivable, and beginning and ending of year $405,423 and $493,558 accounts payables (respectively). Assume a 365 day year.
What is Libscomb's Cash Cycle (in days)?
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Cash conversion is 41.44 days
Step-by-step explanation
Average payable = {Beginning Accounts payable + Ending accounts payable} ÷ 2
= {$405,423 + $493,558} ÷ 2
= $449,490.50
Days sales outstanding (DSO) = {Average accounts receivable ÷ Sales} × 365
= {$539,307 ÷ $5,625,005} × 365
= 35 days
Days inventory outstanding (DIO) = {Average Inventory ÷ COGS} × 365
= {$524,461 ÷ $4,249,451} × 365
= 45.048 days
Days payable outstanding (DPO) = {Average accounts payable ÷ COGS} × 365
= {$449,490.50 ÷ $4,249,451} × 365
= 38.608 days
Cash conversion cycle (CCC) is computed using the equation given below:
Cash conversion cycle = Days sales outstanding + Days inventory outstanding - Days payable outstanding
= 35 + 45.048 - 38.608
= 41.44 days
