Question

Use Revlon's financial information to answer the following questions:

a. What is Revlon's operating cycle (in days/) in 2016 and 2015? Comment on the change form year to year.

b. What is Revlon's cash operating cycle (in dyads)in 2016 and 2015? Comment on the change form year to year.

c. Use Revlon's financial information to compare the components of Revlon's operating cycle and cash operating cycle to L'Oreal's for 2016. The following table provides the amount for L'Oreal.

Balance Sheet Information (in million of dollars)

At December 31	2016	2015	2014
Accounts Receivable	$ 423.9	$ 244.9	$ 238.9
Inventories	424.6	183.8	156.6
Accounts Payable	296.9	201.3	153.5

Income Statement Information (in million of dollars)

For the year	2016	2015	2014
Sales (all credit)	$ 2,334.0	$ 1,914.3	$ 1,941.0
Cost of Goods Sold	917.1	667.8	668.3

Component	L'Oreal 2016	Revlon 2016
Accounts receivable turnover ratio	6.83
Days sales outstanding	53.44
Inventory turnover ratio	2.86
Days inventory on hand	127.62
Accounts payable turnover ratio	1.82
Days accounts payable outstanding	200.55
Operating cycle	181.06
Cash operating cycle	19.49

Answer 1

Answer is given below

a) Days Days Sales Outstanding Average Account Receivable Credit Sales 2016 $334.4 $2,334.0 Days 5220 X 365 2015 $241.9 $1,914.3 46.12 Days Days Days Inventory on hand Average Inventory Cost of Goods sold 2016 $304.2 $917.1 2015 $170.2 $667.8 X 365 121.07 93.03 Operating Cycle Days Sales Outstanding Days Inventory on hand Operating Cycle Days 2016 2015 52.29 46.12 121.07 93.03 173.36139.15 Comments: The Operating cycle has increased in 2016 compared to 2015 Firm is having higher Days outstanding for accounts receivable and carrying higher inventory b) Days Days Days Accounts payable outstanding Average Accounts payable Cost of Goods sold X 365 2016 $249.1 $917.1 99.14 2015 $177.4 $667.8 96.96 Cash Operating Cycle Operating Cycle Days Accounts payable outstanding Cash Operating Cycle (Days) 2016 2015 173.36139.15 99.14 96.96 74.22 42.19 Comments: Cash operating cycle has increased from 2015 to 2015 This is mainly due to increase in Accounts receivable days and higher inventory Days accounts payable outstanding is almost same for both years c) Comparison Operating Cycle Days Cash Operating Cycle Revlon L'Oreal 173.36181.06 74.22 19.49 L'Oreal is having higher Operating cycle days compared to Revlon due to higher Inventory carried Days sales outstanding is almost same for both firm How ever cash Operating cycle is lower for L'Oreal due to higher Days accounts payable outstanding Working note 2016 $423.9 $334.41 2015 $244.91 2014 | $238.9 Accounts receivable Average Accounts Receivable for 2016 Average Accounts Receivable for 2015 $241.9 $183.8 $156.6 Inventories Average Inventories for 2016 Average Inventories for 2015 $424.6 $304.2 $170.21 $201.31 $153.5 Accounts payable Average Accounts payable for 2016 Average Accounts payable for 2015 $296.9 $249.1 $177.4