Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows:

*Note: Average inventories also equal $12.0 (million).
Determine the length of the firm's cash conversion cycle.

Question

Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows:

*Note: Average inventories also equal $12.0 (million).
Determine the length of the firm's cash conversion cycle.

Quizplus · Accepted Answer

Solution:
Inventory conversion period = $12.0/($75.0/365) = 58.4 days
Receivables conversion period = $15.0/($125.0/365) = 43.8 days
Operating cycle = 58.4 + 43.8 = 102.2 days
Payables deferral period = ($15.0 + $3.0)/[($75.0 + $30.0)/365] = 62.6 days
Cash conversion cycle = 102.2 - 62.6 = 39.6 days

Gates Industries Balance Sheet and Income Statement for the Year