Question 2: Activity ratios

The following financial information is for Ambroise Industries Inc.:

Ambroise is a distributor of auto parts operating in eastern Ontario that offers 30-day terms and has all sales on credit. The company has a large inventory due to the number of parts it stocks for different makes and models of cars. Most of its suppliers offer terms of 30 days, and Ambroise tries to stay on good terms with its suppliers by paying on time.

a.)

What is the average time it takes Ambroise to collect its accounts receivable? How does that compare with the credit terms that the company offers?

b.)

What is the average length of time that it takes Ambroise to sell through its inventory?

What is the average length of time that it takes Ambroise to pay its payables? How does that compare with the credit terms it is offered?

c.)

The cash-to-cash cycle is the length of time from when a company purchases an item of inventory to when it collects cash from its sale, reduced by the days it takes to pay the related accounts payable. How long is Ambroise's cash-to-cash cycle?

Assume that Ambroise finances its inventory with a working capital loan from the bank. If Ambroise could improve its inventory management system and reduce the days to sell inventory to an

2020 5,000,000 $4,500,000 2,250,000 Sales Cost of goods sold Accounts receivable585,500 Inventory Accounts payable Total assets 2,025,000 558,800 707,400 195,250 1,690,500 770,800 200,750 1,875,200