Reference no: EM132888183
Question - Black Sheep Broadcasting Company is a mature firm that has a stable flow of business. The following data was taken from its financial statements last year:
Annual sales: $9,700,000
Cost of goods sold: $7,275,000
Inventory: $3,100,000
Accounts receivable: $2,100,000
Accounts payable: $2,500,000
Black Sheep Broadcasting's CFO is interested in determining the length of time funds are tied up in working capital. Use the information in the preceding table to answer the following questions.
What is the value of the inventory conversion period?
Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?
Current assets should be divided by sales, but current liabilities should be divided by the COGS.
Inventory and accounts payable are carried at cost on the balance sheet, whereas accounts receivable are recorded at the price at which goods are sold.
What is the average collection period?
What is the payables deferral period?
What is the cash conversion cycle?