Evaluate the length of the inventory conversion

Assignment Help Financial Accounting

Reference no: EM1314823

Computation of working capital cycle.

The Garcia Industries balance sheet and income statement for the year ended 2006 are as follows:
Balance Sheet (in Millions of Dollars)

Assets	Liabilities and Stockholder's Equity
Cash	$6.0	Accounts Payable	$10.0
Accounts receivable	14.0	Salaries, benefits, and payroll taxes payable	2.0
Inventories*	12.0	Other current liabilities	10.0
Fixed Assets, net	40.0	Long-term debt	12.0
		Stockholders' equity	38.0
	72.00		72.00

*The average inventory over the past 2 years also equals 12 million.
Income Statement (in Millions of Dollars)

Net Sales	$100.0
Cost of Sales	60.0
Selling, general and administrative expenses	20.0
Other expenses	15.0
Net Income	5.0

a. Determine the length of the inventory conversion period.
b. Determine the length of the receivables conversion period.
c. Determine the length of the operating cycle.
d. Determine the length of the payables deferral period.
e. Determine the length of the cash conversion cycle.
f. What is the meaning of the number you calculated in (e)?

Reference no: EM1314823

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