14-4 Look back in the chapter to Table 14.1, which showed the balance sheets for

Question

14-4 Look back in the chapter to Table 14.1, which showed the balance sheets for Unilate Textiles on three different dates. Assume all sales and all purchases are made on credit. Calculate the length of Unilate’s cash conversion cycle on September 30, 2017 and December 31, 2017.

TABLE 14.1 Unilate Textiles: Historical and Projected Financials ( Million) 2/31/16 Historical otal current liabilities (CL) Total Liabilities and Equity Net working capital CA-CL Current ratio- CA/CL Earnings before interest and taxes

Explanation / Answer

Ans. Cash conversion cycle = Days Inventory outstanding + Days receivable outstanding - Days payable outstanding

Days inventory outstanding = Average inventory/COGS per day

Days receivable outstanding = Average accounts receivable/Revenue per day

Days payable outstanding = Average accounts payable/COGS per day

COGS = Cost of goods sold

Particulars Sep 30'2017 Dec 30'2017 Average Inventory 410+270/2 = 340 297+410/2 = 353.5 Average receivables 251.5+180/2 = 215.75 251.5+198/2 = 224.75 Average payables 90+30/2 = 60 90+33/2 = 61.5 COGS per day 1230/365 = 3.37 1353/365 = 3.71 Revenue per day 1500/365 = 4.11 1650/365 = 4.52 Days inventory outstanding-A 340/3.37 = 100.89 353.5/3.71 = 95.28 Days receivable outstanding-B 215.75/4.11 = 52.49 224.75/4.52 = 49.72 Days payable outstanding-C 60/3.37 = 17.80 61.5/3.71 = 16.58 Cash conversion cycle=A+B-C 100.89+52.49-17.80 =135.58 95.28+49.72-16.58=128.42

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