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The following data is taken from a firm’s income statement: Sales 6,000 Cost of goods sold...

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Finance

The following data is taken from a firm’s income statement:Sales 6,000 Cost of goods sold 4,500 Interest 600 Tax 150

And from its balance sheet: Cash 800 Inventory 650 Accountsreceivable 180 Accounts payable 460

(a) Calculate the firm’s cash conversion cycle. Use 365 days peryear.
(b) Is reducing the cash conversion cycle a good objective or not?Explain.
(c) Can a cash conversion cycle be negative? Explain, and if so,give an example of a type of firm that would have a negativecycle.

Answer & Explanation Solved by verified expert
3.6 Ratings (461 Votes)
a Cash conversion cycle 2636 days Explanation Cash conversion cycle Days inventory outstanding Days sales outstanding Days payable outstanding Days inventory outstanding 650 365 4500 5272 days Days sales    See Answer
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Transcribed Image Text

The following data is taken from a firm’s income statement:Sales 6,000 Cost of goods sold 4,500 Interest 600 Tax 150And from its balance sheet: Cash 800 Inventory 650 Accountsreceivable 180 Accounts payable 460(a) Calculate the firm’s cash conversion cycle. Use 365 days peryear.(b) Is reducing the cash conversion cycle a good objective or not?Explain.(c) Can a cash conversion cycle be negative? Explain, and if so,give an example of a type of firm that would have a negativecycle.

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