Sales $122,800 Cost of Goods Sold 104,380
Accounts Receivable 10,900
Inventory 1,420
Accounts Payable 22,640
Cromwell Incorporated has the information shown above on its annual Income Statement and Balance Sheet (all numbers shown are in thousands). What is Cromwell's cash conversion cycle?

Question

Quizplus · Accepted Answer

The cash conversion cycle is calculated as Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO). DIO = (Inventory/COGS) * 365 = (1,420/104,380) * 365 = 4.96 days. DSO = (Accounts Receivable/Sales) * 365 = (10,900/122,800) * 365 = 32.39 days. DPO = (Accounts Payable/COGS) * 365 = (22,640/104,380) * 365 = 79.15 days. Cash Conversion Cycle = 4.96 + 32.39 - 79.15 = -41.8 days.