Marshall Inc. recently hired your consulting firm to improve the company's performance. It has been highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle?
$\begin{array}{lr}
\text { Average inventory }= & \$ 75,000 \
\text { Annual sales }= & \$ 600,000 \
\text { Annual cost of goods sold }= & \$ 360,000 \
\text { Average accounts receivable }= & \$ 160,000 \
\text { Average accounts payable }= & \$ 25,000
\end{array}$

Question

Marshall Inc. recently hired your consulting firm to improve the company's performance. It has been highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? 
$\begin{array}{lr}
\text { Average inventory }= & \$ 75,000 \
\text { Annual sales }= & \$ 600,000 \
\text { Annual cost of goods sold }= & \$ 360,000 \
\text { Average accounts receivable }= & \$ 160,000 \
\text { Average accounts payable }= & \$ 25,000
\end{array}$

Quizplus · Accepted Answer

$\begin{array}{lrr}
\text { Avg. inventory }= & \$ 75,000 \text { Annual sales }= & \$ 600,000 \
\text { Avg. receivables }= & \$ 160,000 \text { Annul COGS }= & \$ 360,000 \
\text { Avg. payables }= & \$ 25,000 \text { Days in year }= & 365
\end{array}$ 
 $\begin{array}{lclclcl}
\text { Inv. conv. period }=\text { Inv./(COGS/365) } &76.0 \
+\mathrm{DSO}=\text { Receivables } /(\text { Sales } / 365) & 97.3 \
-\text { Payables deferral }=\text { Payables } /(\mathrm{COGS} / 365)&-25.3\
\text { Cash conversion cycle (CC) }&148.0
\end{array}$

Marshall Inc A) 1206 Days B) 126

Marshall Inc A) 1206 Days
B) 126