Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales. The average inventory is $369,000, accounts payable average $438,000, and receivables average $147,000. How long is the cash cycle?

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norvysgonzalez norvysgonzalez · Answer 1 · 2019-09-13T21:25:49+02:00

Answer:

The cash cycle is equal to 13.19

Explanation:

The formula to calculate cash cycle is =

days sales outstanding + days inventory outstanding - days payables outstanding

The formula to calculate days sales outstanding is =

receivables average × 365 ÷ Credit Sales =

($147,000 * 365) / $1,620,000 = 33.12

The formula to calculate days inventory outstanding is =

average inventory × 365 ÷ costs of goods sold

($369,000 * 365) / $1,263,600 = 106.59

The formula to calculate days payables outstanding is =

accounts payable average × 365 ÷ costs of goods sold

($438,000 * 365) / $1,263,600 = 126.52

Cash cycle is = 33.12 + 106.59 - 126.52 = 13.19