Computation of cash conversion cycle

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Reference no: EM1314827

Computation of cash conversion cycle from income statement and balance sheet.

The Hopewell Pharmaceutical Company's balance sheet and income statement for last year are as follows:
Balance Sheet (in Millions of Dollars)

Assets Liabilities and Equity

Cash and Marketable securities	$1,100	Accounts Payable	$900
Accounts receivable	1,300	Accrued liabilities (Salaries and benefits)	300
Inventories*	800	Other Current liabilities	700
Other current assets	200	Total current liabilities	$1,900
Total current assets	$3,400	Long-term debt and other liabilities	1,000
Plant and equipment (net)	2,300	Common stock	1,800
Other Assets	1,000	Retained earnings	2,000
Total Assets	$6,700	Total Stockholders' equity	3,800
Total liabilities and equity	$6,700

*Assume that average inventory over the year was $800 million, that is, the same as ending inventory.

Income Statement (In millions of dollars)

Net Sales	$6,500
Cost of sales	1,500
Selling, general, and administrative expenses	2,500
Other expenses	800
Total expenses	$4,800
Earnings before taxes	1,700
Taxes	680
Earnings after taxes (net income)	$1,020

a. Determine Hopewell's cash conversion cycle.

b. Give an interpretation of the value computed in (a).

Reference no: EM1314827

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