Question

Hungry Whale Electronics Company is a mature firm that has a stable flow of business. The following data was taken from its financial statements last year: Annual sales Cost of goods sold Inventory Accounts receivable Accounts payable $9,900,000 $6,435,000 $3,200,000 $1,900,000 $2,600,000 Hungry Whale's CFO is interested in determining the length of time funds are tied up in working capital. Use the information in the preceding table to omplete the following table. (Note: Use 365 days as the length of a year in all calculations, and round all values to two decimal places.) Value Inventory Conversion Period Average collection period Payables Deferral Period Cash conversion cycle

Answer 1

	Value
Inventory Conversion period = ( Inventory / Cost of goods sold ) * Days in a year = ( 3200000 / 6435000 ) * 365	181.51
Average collection period = ( Accounts receivable / Annual sales ) * Days in a year = ( 1900000 / 9900000 ) * 365	70.05
Payables deferral period = ( Accounts payable / Cost of goods sold ) * Days in a year = ( 2600000 / 6435000 ) * 365	147.47
Cash conversion cycle = Inventory conversion period + Average collection period - Payables deferral period = 181.51 + 70.05 - 147.47	104.09