The Hamlin Corporation has an inventory conversion period of 60 days, a receivab

Question

The Hamlin Corporation has an inventory conversion period of 60 days, a receivables collection period of 30 days, and a payables deferral period of 30 days. Its annual credit sales are $5,000,000, and its annual cost of goods sold (COGS) is 60% of sales.

a. What is the length of the firm's cash conversion cycle?

b. What is the firm's investment in accounts receivable?

c. What is the company's inventory turnover ratio?

d. Identify three ways in which the company could reduce its cash conversion cycle? What are the possible risks of reducing it?

Explanation / Answer

Receivables Conversion Period = Accounts Receivable/(Annual Credit Sales/365) The accounts receivable is divided by per day credit sales which is calculated as Annual Credit Sales/365

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