4. The Greek Connection had sales of $32 million in 2012, and a cost of goods so
ID: 2636075 • Letter: 4
Question
4. The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:
THE GREEK CONNECTION
Balance Sheet
As of December 31, 2012 (in $ thousand)
Assets
Liabilities and Equity
Cash
Accounts receivable
Inventory
$ 2,000
3,950
1,300
Accounts payable
Notes payable
Accruals
$ 1,500
1,000
1,220
Total current assets
$ 7,250
Total current liabilities
Long-term debt
$ 3,720
3,000
Net plant, property,
and equipment
$ 8,500
Total liabilities
Common equity
$ 6,720
9,030
Total assets
$ 15,750
Total liabilities and equity
$ 15,750
a. Calculate The Greek Connection
THE GREEK CONNECTION
Balance Sheet
As of December 31, 2012 (in $ thousand)
Assets
Liabilities and Equity
Cash
Accounts receivable
Inventory
$ 2,000
3,950
1,300
Accounts payable
Notes payable
Accruals
$ 1,500
1,000
1,220
Total current assets
$ 7,250
Total current liabilities
Long-term debt
$ 3,720
3,000
Net plant, property,
and equipment
$ 8,500
Total liabilities
Common equity
$ 6,720
9,030
Total assets
$ 15,750
Total liabilities and equity
$ 15,750
Explanation / Answer
Hi,
Please find the detailed answer as follows:
Part A:
Net Working Capital = Current Assets - Current Liabilities = 7250 - 3720 = $3530
----
Part B:
Cash Conversion Cycle = DIO + DSO - DPO = Accounts Receivables/Average Daily Sales + Inventory/Average Daily Cost of Goods Sold - Accounts Payable/Average Daily Cost of Goods Sold = 3950/(32000/365) + 1300/(20000/365) - 1500/(20000/365) = 41.40 Days or 42 Days
----
Part C:
Cash Conversion Cycle = 30 + 1300/(20000/365) - 1500/(20000/365) = 26.35 days or 27 days.
Thanks.
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