The Robinson Company has the following current assets and current liabilities fo
ID: 2675163 • Letter: T
Question
The Robinson Company has the following current assets and current liabilities for these two years.Years 2010/2011
Cash and marketable securities $50,000/ $50,000
Accounts receivable 300,000 /350,000
Inventories 350,000/ 500,000
Total current assets $700,000/ $900,000
Accounts payable $200,000/ $250,000
Bank loan 0/ 150,000
Accruals 150,000 /200,000
Total current liabilities $350,000 /$600,000
If sales in 2010 were $1.2 million, sales in 2011 were $1.3 million, and cost of goods sold was at 70 percent of sales, how long were Robinson
Explanation / Answer
cash conversion cycle
= ((avg inventory/COGS) + (avg receivable/sales) - (avg payables/purchases))*365
Operating cycle
= ((avg inventory/COGS) + (avg receivable/sales))*365
CCC 2010 = ((350000/(1200000*70%)) + (300000/1200000) - (200000/(1200000*70%)))*365
= 156.4286 days
CCC 2011 = ((500000/(1300000*70%)) + (350000/1300000) - (250000/(1200000*70%)))*365
= 190.1877 days
Operating cycle 2010 = ((350000/(1200000*70%)) + (300000/1200000))*365
= 243.3333 days
Operating cycle 2011 = ((500000/(1300000*70%)) + (350000/1300000))*365
= 298.8187 days
decrease in inventory efficiency caused them to increase.
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