Assignment 2

Measuring Cash Conversion Cycle.

You have just been appointed as the chief financial officer of a mid-sized manufacturing company and you are keen to measure the firms cash conversion cycle, operating cycle, production cycle, collection cycle, and payment cycle, so as to see if any changes are warranted. You collect the necessary information for the most recent financial year, and puts together the table below:

Cash sales 200,000

Credit sales 600,000

Total sales 800,000

Cost of goods sold 640,000

Ending Balance Beginning Balance

Accounts receivable 40,000 36,000

Inventory 10,000 6,000

Accounts payable 9,000 5,000

You are required to calculate:

a. Calculate the firms (all in days)

production cycle,

collection cycle, and

payment cycle

operating cycle,

firms cash conversion cycle

b. How do you interpret each of the answers obtained in (a)?