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Consider the following financial statement information for Start-Up International: Item Beginning (S) Ending (S) Inventory 42,600 46,000 Accounts receivable 35,000 30,500 Account payable 31,000 34,000 Net Sales: $350,000 Cost of Goods Sold: $180,000 Assume all sales are on credit
Consider the following financial statement information for Start-Up International: Item Beginning (S) Ending (S) Inventory 42,600 46,000 Accounts receivable 35,000 30,500 Account payable 31,000 34,000 Net Sales: $350,000 Cost of Goods Sold: $180,000 Assume all sales are on credit. (6 marks) Calculate the cash cycle of Start-Up International.
Expert Solution
Days Receivables turnover = 365 days / [Net sales / Average Accounts receivables] = 365 / [350,000 / (35000+30500)/2]
Days Receivables turnover = 34.1536
Days Inventory turnover = 365 days / [Cost of goods sold / Average Inventory] = 365 / [180000 / (42,600+46000)/2]
Days Inventory turnover = 89.83056 days
Days Payables turnover = 365 days / [(cost of goods sold / Average payables)] = 365 / [180000/(31000 + 34000)/2]
Days Payables turnover = 65.09 days
Cash Conversion Cycle = Days Receivables turnover + Days Inventory turnover - Days Payables turnover
Cash Conversion Cycle = 34.1536 + 89.83056 - 65.09 days = 58.08 days
Cash Conversion Cycle = 58.08 days
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