Desktop Computer Company would like to calculate their cash conversion cycle. What factors are included in computing this metric?Multiple select question.days' sales in inventorydays' sales in net incomedays' sales in cashdays' sales in accounts receivabledays' sales in accounts payable (aka days payables outstanding)
Question
Desktop Computer Company would like to calculate their cash conversion cycle. What factors are included in computing this metric?Multiple select question.days' sales in inventorydays' sales in net incomedays' sales in cashdays' sales in accounts receivabledays' sales in accounts payable (aka days payables outstanding)
Solution
The cash conversion cycle is calculated using three key components:
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Days' sales in inventory: This measures the average time it takes for a company to turn its inventory into sales. It is calculated by dividing the inventory by the cost of goods sold and then multiplying by 365.
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Days' sales in accounts receivable: This measures the average time it takes for a company to collect cash from its credit sales. It is calculated by dividing accounts receivable by net credit sales and then multiplying by 365.
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Days' sales in accounts payable (aka days payables outstanding): This measures the average time it takes for a company to pay its suppliers. It is calculated by dividing accounts payable by cost of goods sold and then multiplying by 365.
The cash conversion cycle is then calculated by adding the days' sales in inventory and days' sales in accounts receivable, then subtracting the days' sales in accounts payable. This gives a measure of how long a firm's cash is tied up in its operations.
Please note that days' sales in net income and days' sales in cash are not typically included in the calculation of the cash conversion cycle.
Similar Questions
Multiple Select QuestionSelect all that applyDesktop Computer Company would like to calculate their cash conversion cycle. What factors are included in computing this metric?Multiple select question.days' sales in accounts payable (aka days payables outstanding)days' sales in net incomedays' sales in inventorydays' sales in cashdays' sales in accounts receivable
Multiple Choice QuestionThe cash conversion cycle is computed as:Multiple choice question.days' sales in accounts receivable plus days' sales in inventory minus days' payable outstandingdays' sales in accounts receivable minus days' sales in inventory minus days' payable outstandingdays' sales in accounts receivable minus days' sales in inventory times days' payable outstandingdays' sales in accounts payable plus days' sales in inventory minus days' payable outstanding
Question 8Tips2 ptsAn analyst gathers the following data for a firm:Sales: $2,500Cost of Goods Sold: $720Interest Paid: $26Net Income: $102Total Assets: $106,500Equity: $56,225Inventory: $180Accounts Receivables: $108Accounts Payables: $142Based on this information, what is the firm's Operating Cash Conversion Cycle (in days)?
Fill in the Blank QuestionFill in the blank question.A company has days' sales in accounts receivable of 40 days; days' sales in inventory of 55 days, and days' payable outstanding of 30 days. The cash conversion cycle is _.
What is the correct formula for Cash Conversion Cycle?
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