Cash Conversion Cycle

Description

Cash conversion cycle (CCC) represents the period between paying to

suppliers for delivering raw materials and collecting cash from the sale of
finished goods. It is equal to the number of days of inventory plus the
number of days of receivables minus the number of days of payables.

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Income Statement

Current Year Previous Year

Revenue $510,000 $490,000
Cost of goods sold ($360,000) ($347,000)
Gross Profit $150,000 $143,000

Sales, general and administrative expenses ($100,000) ($94,080)

Operating profit $50,000 $48,920

Interest expense ($12,000) ($14,000)

Income tax expense ($12,000) ($11,741)
Net income $26,000 $23,179
Balance Sheet

Current Year Previous Year

Cash $34,000 $30,000
Trade receivables $44,000 $68,000
Inventory $120,000 $146,000
Current Assets $198,000 $244,000

Property, plant and equipment $548,000 $602,000

Intangible assets $50,000 $56,000
Goodwill $6,000 $0
Non-current Assets $604,000 $658,000

Total Assets $802,000 $902,000

Trade payables $85,000 $101,000

Income tax payable $40,000 $55,000
Current Liabilities $125,000 $156,000

Long-term debt $300,000 $336,000

Retirement benefit obligations $22,000 $20,000
Non-current Liabilities $322,000 $356,000

Total Liabilities $447,000 $512,000

Equity $355,000 $390,000

Total Equity & Liabilities $802,000 $902,000

Cash Conversion Cycle

Input Data

Current Year

Credit Sales $255,000

Cost of Goods Sold (COGS) $360,000
Average Inventory $133,000
Average Receivables $56,000
Average accounts payables $93,000
Purchases* $334,000 * Purchases = ending inventory – beginning inventory + cost of goods sold

Output

Inventory Turnover 2.71 =C8/C9

Number of Days of Inventory 134.85 =365/C19

Accounts Receivable Turnover 4.55 =C7/C10

Number of Days of Receivables 80.16 =365/C22

Payables Turnover 3.59 =C12/C11

Number of Days of Payables 101.63 =365/C25

Cash Conversion Cycle 113.37 =C20+C23-C26