Reference no: EM131290176
Aztec Products wishes to evaluate its cash conversion cycle (CCC). One of the firm's financial analysts has discovered that on average the firm holds items in inventory for 65 days, pays its suppliers 35 days after purchase, and collects its receivables after 55 days. The firm's annual sales (all on credit) are about $2.1 billion, its cost of goods sold represent about 67 percent of sales, and purchases represent about 40 percent of cost of goods sold. Assume a 365-day year.
a. What is Aztec Products' operating cycle (OC) and cash conversion cycle (CCC)?
b. How many dollars of resources does Aztec have invested in (1) inventory, (2) accounts receivable, (3) accounts payable, and (4) the total CCC?
c. If Aztec could shorten its cash conversion cycle by reducing its inventory holding period by 5 days, what effect would that have on its total resource investment found in part (b)?
d. If Aztec could shorten its CCC by 5 days, would it be best to reduce the inventory holding period, reduce the receivable collection period, or extend the accounts payable period?
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