Suppose that LilyMac Photography has annual sales of $229,000, cost of goods sol

Question

Suppose that LilyMac Photography has annual sales of $229,000, cost of goods sold of $164,000, average inventories of $5,600, average accounts receivable of $27,200, and an average accounts payable balance of $18,300.

Assuming that all of LilyMac’s sales are on credit, what will be the firm’s cash cycle? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Suppose that LilyMac Photography has annual sales of $229,000, cost of goods sold of $164,000, average inventories of $5,600, average accounts receivable of $27,200, and an average accounts payable balance of $18,300.

Explanation / Answer

Operating cycle = days of receivables outstanding + days of inventory on hand

  = 365 * avg receivables/net credit sales + 365 * avg inventory/COGS

= 365*27200/229000 + 365*5600/164000 = 55.817 days

Cash cycle = operating cycle - 365*avg payables/COGS = 55.817 - 365*18300/164000 = 15.09 days

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