Cash Conversion Cycle Negus Enterprises has an inventory conversion period of 70

Question

Cash Conversion Cycle

Negus Enterprises has an inventory conversion period of 70 days, an average collection period of 42 days, and a payables deferral period of 33 days. Assume that cost of goods sold is 80% of sales. Assume 365 days in year for your calculations.

What is the length of the firm's cash conversion cycle?
days

If Negus's annual sales are $3,679,150 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar.
$   

How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.

Explanation / Answer

1)Cash Conversion Cycle = Inventory conversion period+ Accounts receivables collection period - Payables deferral period ie. 70 + 42 -33= 79 days 2)Accounts Receivables Turnover(in times a year) = Net credit sales/ Accounts receivables No.of days or collection period = 365 / Accounts receivables T.O. So, 42 =365 / (Net credit sales/ Accounts receivables ie. 42= 365 / (3679150/AR) So,Accounts Receivables= (42*3679150) /365 = $423354.25 3)Inventory conversion time= 70 days No.of days in a year= 365 So, no.of times inventory is turned over in a year= 365/70 = 5.21 times in a year

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