Question

Marshall Inc. recently hired your consulting firm to improve the company's performance. It has been 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 = $180,000
Average accounts payable = $37,000

Answer 1

Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $.

Parameter	Linkage	$
Sales	S	600,000.00
Inventory	I	75,000.00
Receivables	R	180,000.00
Payables	P	37,000.00
COGS	COGS	360,000.00
Parameter	Linkage	Days
Inventory Conversion Period	A = I/COGS x 365	76.04
Average Collection period	B = R/S x 365	109.50
Average Payment Period	C = P/COGS x 365	37.51
Cash Conversion Cycle (CCC)	A + B - C	148.03