Your consulting firm was recently hired to improve the performance of ABC Inc, w
ID: 2751071 • Letter: Y
Question
Your consulting firm was recently hired to improve the performance of ABC Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to analyze the firm's cash cycle. Using the following information and a 365-day year, what is the firm’s operating cycle?
$75,000
$875,000
$525,000
$160,000
$25,000
118.8 days
107.6 days
101.5 days
105.6 days
79.2 days
Average inventory =$75,000
Annual sales =$875,000
Annual cost of goods sold =$525,000
Average accounts receivable =$160,000
Average accounts payable =$25,000
Explanation / Answer
Operating Cycle =365× Average Inventories÷Purchases +365× Average Accounts Receivable×Credit Sales
=365×$75,000÷$525,000+365×$160,000÷$875,000
= 118.8 Days
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