Compute Cash Conversion Cycle for Competing Firms

Halliburton and Schlumberger compete in the oil field services sector. Refer to the following 2018 financial data for the two companies to answer the requirements.

$ millionsHALSLBTotal revenue$24,410$33,230Cost of sales and services21,42428,893Average accounts receivable5,5508,398Average inventory3,1274,443Average accounts payable3,20110,545

a. Compute the following measures for both companies.

1. AR Turnover and days sales outstanding (DSO)

Note: 1. Select the appropriate numerator and denominator used to compute AR turnover from the drop-down menu options. 2. Enter the numerator and denominator amounts to compute AR turnover.

CompanyNumeratorDenominatorAR turnover AnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnoverAnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnover HALAnswerAnswer SLBAnswerAnswer

Note: 1. Select the appropriate numerator and denominator used to compute DSO from the drop-down menu options. 2. Enter the numerator and denominator amounts to compute DSO.

CompanyNumeratorDenominatorDSO AnswerNumber of days in a quarterNumber of days in six monthsNumber of days in a yearAnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnover HALAnswerAnswer SLBAnswerAnswer

2. Inventory Turnover and days inventory outstanding (DIO)

Note: 1. Select the appropriate numerator and denominator used to compute inventory turnover from the drop-down menu options. 2. Enter the numerator and denominator amounts to compute inventory turnover

CompanyNumeratorDenominatorInventory turnover AnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnoverAnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnover HALAnswerAnswer SLBAnswerAnswer

Note: 1. Select the appropriate numerator and denominator used to compute DIO from the drop-down menu options. 2. Enter the numerator and denominator amounts to compute DIO.

CompanyNumeratorDenominatorDIO AnswerNumber of days in a quarterNumber of days in six monthsNumber of days in a yearAnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnover HALAnswerAnswer SLBAnswerAnswer

3. AP Turnover and days payable outstanding (DPO)

Note: 1. Select the appropriate numerator and denominator used to compute AP turnover from the drop-down menu options. 2. Enter the numerator and denominator amounts to compute AP turnover.

CompanyNumeratorDenominatorAP turnover AnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnoverAnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnover HALAnswerAnswer SLBAnswerAnswer

Note: 1. Select the appropriate numerator and denominator used to compute DPO from the drop-down menu options. 2. Enter the numerator and denominator amounts to compute DPO.

CompanyNumeratorDenominatorDPO AnswerNumber of days in a quarterNumber of days in six monthsNumber of days in a yearAnswerTotal RevenueCost of sales and servicesAverage accounts receivableAverage inventoryAverage accounts payableAR turnoverInventory turnoverAP turnover HALAnswerAnswer SLBAnswerAnswer

4. Cash conversion cycle (CCC)

Cash Conversion CompanyDSODIODPOCycle HAL SLB

QuestionCompanyb. Which company better manages its accounts receivable?AnswerHALSLBc. Which company uses inventory more efficiently?AnswerHALSLBd. Which company better manages its accounts payable?AnswerHALSLB

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