Question

In 2016, Bien has average inventory of $105 million, and average receivable of $100 million. it had sales of $650 million and cost of goods sold of $360 million dollar.

a.) What’s inventory period, receivables period?

b.) What’s the operaring cycle?

Answer 1

a)

Accounts receivable turnover ratio

= Net credit sales / Average accounts receivable

= $650 million / $100 million

= 6.5 times

Inventory period / receivables period assuming 366 days in a year ( as 2016 was a leap year)

= 366 / Accounts receivable turnover ratio

= 366 / 6.5

= 56.31 days

b)

Operating cycle

= Average inventory / Cost of goods sold x 366 days

= $105 million / $360 million x 366

= 106.75 days