PROBLEM 15-3 CASH CONVERSION CYCLE Sims Electric Corp. has been striving for the last 5 years to improve its management of working capital. Historical data for the firm's sales, accounts receivable, inventories, and accounts payable are shown below. a. Calculate Sims' days of sales outstanding and days of sales in inventory for each of the 5 years. Use a 365-day year. b. Calculate Sims' cash conversion cycle for each of the 5 years. Use a 365-day year. Evaluate Sims' overall management of its working capital. Note: Assume cost of goods sold is 70% of sales. DATA Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Sales--Net Receivables Accounts pavable Inventories Cost of goods sold/Sales S2,873 411 283 220 70% S3,475 538 447 293 S5,296 726 466 429 S7,759 903 1,040 251 S12,327 1,486 1,643 233 SOLUTION a. Calculate Sims' days of sales outstanding and days of sales in inventory for each of the 5 years. Use a 365-day year. What has Sims accomplished in its attempts to better manage its investments in accounts receivable and in Cost of goods sold Days of sales outstanding Days of sales in inventory Change in days of sales outstanding w.r.t. year 1 Change in days of sales in inventory w.r.t. year 1 b. Calculate Sims' cash conversion cycle for each of the 5 years. Use a 365-day year. Evaluate Sims' overall management of its working capital. Days of payables outstanding Cash conversion cycle Change in cash conversion cycle w.r.t. year 1