# Van Den Borsh Corp

1284 Words6 Pages
Problems – Chapter 16 1. Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle? Average inventory = \$75,000 Annual sales = \$600,000 Annual cost of goods sold = \$360,000 Average accounts receivable = \$160,000 Average accounts payable = \$25,000 Cash Conversion Cycle: Inventory conversion period (ICP) = Average inventory / Cost of goods sold per day =…show more content…
What will be the net change in the cash conversion cycle, assuming a 365-day year? Input data: Annual sales = \$50,735,000 Average inventory = \$15,012,000 Average accounts receivable = \$10,008,000 Cost of goods sold = 85% of \$50,735,000 = \$43,124,750 Average accounts payable = (43,124,750/365) * 30 = \$3,544,500 Cash Conversion Cycle: Inventory conversion period (ICP) = Average inventory / Cost of goods sold per day = 15,012,000 / (43,124,750/365) = 127.06 days Receivable conversion period (RCP) = Average accounts receivable / Sales per day = 10,008,000 / (50,735,000/365) = 72 days Payables deferral period (PDP) = Average accounts payable / Cost of goods sold per day = 3,544,500 / (43,124,750/365) = 30 days Cash Conversion Cycle (CCC) = ICP + RCP – PDP = 127.06 + 72 – 30 days = 169.06 days New input data: Annual sales = \$50,735,000 Average inventory = \$15,012,000 - 1,946,000 =