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Green Melon Electronics Company is a mature firm that has a stable flow of business. The following data was taken from its financial statements last
Green Melon Electronics Company is a mature firm that has a stable flow of business. The following data was taken from its financial statements last year:
Annual sales $
Cost of goods sold $
Inventory $
Accounts receivable $
Accounts payable $
Green Melons CFO is interested in determining the length of time funds are tied up in working capital. Use the information in the preceding table to answer the following questions. Note: Use days as the length of a year in all calculations, and round all values to two decimal places.
What is the value of the inventory conversion period?
days
days
days
days
Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?
Inventory and accounts payable are carried at cost on the balance sheet, whereas accounts receivable are recorded at the price at which goods are sold.
Current assets should be divided by sales, but current liabilities should be divided by the COGS.
What is the average collection period?
days
days
days
days
What is the payables deferral period?
days
days
days
days
What is the cash conversion cycle?
days
days
days
days
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