Cash Conversion Cycle F6D710

1. **State the problem:** We need to calculate (i) the cash conversion cycle and (ii) the Net Working Capital of the company using the given data. 2. **Given data:** - Credit sales = $450000$ - Credit purchases = $380000$ - Finished inventory = $90500$ - Total sales = $610000$ - Cost of goods sold (COGS) = $62\%$ of total sales = $$0.62 \times 610000 = 378200$$ - Accounts payable = $145000$ 3. **Formulas:** - Inventory Conversion Period (ICP) = $$\frac{\text{Finished Inventory}}{\text{COGS}} \times 365$$ - Receivables Conversion Period (RCP) = $$\frac{\text{Credit Sales}}{\text{Total Sales}} \times 365$$ (approximation assuming all sales are credit sales) - Payables Deferral Period (PDP) = $$\frac{\text{Accounts Payable}}{\text{Credit Purchases}} \times 365$$ - Cash Conversion Cycle (CCC) = $$ICP + RCP - PDP$$ - Net Working Capital (NWC) = $$\text{Current Assets} - \text{Current Liabilities}$$ 4. **Calculate Inventory Conversion Period (ICP):** $$ICP = \frac{90500}{378200} \times 365 = 0.2393 \times 365 = 87.35 \text{ days}$$ 5. **Calculate Receivables Conversion Period (RCP):** Since credit sales are $450000$ and total sales are $610000$, we use credit sales for receivables turnover: $$RCP = \frac{450000}{610000} \times 365 = 0.7377 \times 365 = 269.34 \text{ days}$$ 6. **Calculate Payables Deferral Period (PDP):** $$PDP = \frac{145000}{380000} \times 365 = 0.3816 \times 365 = 139.39 \text{ days}$$ 7. **Calculate Cash Conversion Cycle (CCC):** $$CCC = ICP + RCP - PDP = 87.35 + 269.34 - 139.39 = 217.30 \text{ days}$$ 8. **Calculate Net Working Capital (NWC):** Assuming current assets include finished inventory and accounts receivable (credit sales), and current liabilities include accounts payable: - Current Assets = Finished Inventory + Credit Sales = $90500 + 450000 = 540500$ - Current Liabilities = Accounts Payable = $145000$ $$NWC = 540500 - 145000 = 395500$$ **Final answers:** - (i) Cash Conversion Cycle = $217.30$ days - (ii) Net Working Capital = $395500$