Problem Data Answer questions 1-3 using the following financial data for UPS: In
ID: 2710393 • Letter: P
Question
Problem Data Answer questions 1-3 using the following financial data for UPS: Income Statements (000) Period Ending Total Revenue Cost of Revenue Gross Profit 31-Dec-11 31-Dec-12 31-Dec-13 $ 55,438,000 13,703,000 $41,735,000 $53,105,000 54,127,000 13,574,000 $40,553,000 13,507,000 $39,598,000 Operating Expenses Selling General and Administrative Others Total Operating Expenses 31,736,000 1,782,000 $33,518,000 6,080,000 44,000 6,124,000 348,000 5,776,000 1,972,000 3,804,000 37,352,000 1,858,000 39,210,000 1,343,000 24,000 1,367,000 393,000 974,000 167,000 807,000 32,834,000 1,867,000 $34,701,000 S 7,034,000 20,000 $ 7,054,000 380,000 6,674,000 2,302,000 4,372,000 Operating Income or Loss Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Net Income Dividends paid to common stock 1,997,000 2,130,000 2,260,000Explanation / Answer
Cash conversion cycle = days of sales outstanding + days of inventory on hand - days of payables outstanding
= 365*average receivables/ sales + 365*average inventory/COGS - 365*average payables/purchases
For 2011 - 2012
average receivables = (6857000 + 6694000)/2 = 6775500
sales = 54127000
average inventory = (0+0)/2 = 0
COGS = 13703000
average payables = (4924000+4968000)/2 = 4946000
Purchases = COGS + ( ending inventory – beginning inventory) = 13703000 + (0 – 0) = 13703000
Therefore
Cash conversion cycle = -86.05 days
For 2012 - 2013
average receivables = (6694000 + 7186000)/2 = 6940000
sales = 55438000
average inventory = (0+0)/2 = 0
COGS = 13574000
average payables = (5522000+4968000)/2 = 5245000
Purchases = COGS + ( ending inventory – beginning inventory) = 13574000 + (0 – 0) = 13574000
Therefore
Cash conversion cycle = -95.343 days
Cash conversion cycle has decreased due to increase in average payables
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