Cash Conversion Excel Portion

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Punvynggr

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Complete Parts 1 and 2 of the Cash Conversion Cycle. Use Microsoft Excel to record your calculations.

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Cash Conversion Cycle FIN/375 Version 3 University of Phoenix Material Cash Conversion Cycle The HDL, Inc. balance sheet and income statement for the year ending 20xx are as follows: Balance Sheet (In millions of Dollars) ASSETS Cash Accounts Receivable Average Inventory Fixed Assets, net TOTAL ASSETS $6.0 14.0 12.0 40.0 -------$72.0 ===== LIABILITIES AND EQUITY Accounts Payable $10.0 Salaries and Benefits Payable 2.0 Other current Liabilities 10.0 Long-term debt 12.0 Equity 38.0 -------TOTAL EQUITY $72.0 ===== Income Statement (In millions of Dollars) Net Sales $100.0 Cost of Sales 60.0 Selling and admin. Expenses 20.0 Other Expenses 15.0 -------EARNINGS AFTER TAXES $5.0 ===== Part 1 of 2: A. determine the length of the inventory conversion period. B. determine the length of the receivables conversion period. C. determine the length of the operating cycle. D. determine the length of the payables deferral period. E. determine the length of the cash conversion cycle. F. what is the meaning of the number that you calculated in part E? Copyright © 2017 by University of Phoenix. All rights reserved. 1 Cash Conversion Cycle FIN/375 Version 3 Formulas: Inventory Conversion Period (ICP) Average Inventory ------------------------Cost of Sales/365 Receivables Conversion Period (RCP) Accounts Receivable ------------------------Net Sales/365 Operating Cycle (OC) ICP + RCP Payables Deferral Period (PDP) Accounts Payable + Salaries & Benefits ------------------------------------------------------Cost of Sales + Selling and admin. Expenses/365 Cash Conversion Cycle OC - PDP Cash conversion cycle exercise -- part 2 of 2 (Show your work in the Excel template): You have made some calculations on the cash conversion cycle -- so you are a little comfortable with that process. Now, let’s say that you are in upper management, and you want to "tighten your ship" a little to increase your cash flow just on current operations. You ask for the following, reasonable goals: 1) A 10% decrease in average inventory. 2) A 10% decrease in accounts receivable. 3) A 10% increase in accounts payable. While these adjustments are small and reasonable, redo your calculations and see just how much of a difference these small adjustments can make on the total cash conversion cycle. Copyright © 2017 by University of Phoenix. All rights reserved. 2
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Explanation & Answer

Attached.

a. determine the length of the inventory conversion period
12/60*365
73 days
Part b
Receivables conversion period= receivables /sales

*365

14/100*365
51.1 days
Part c

c. determine the length of the operating cycle
73+51.1 days
124.1 days
Part D
Payable deferral paeriod= account payable+ Salaries and benefits /(cost of sales +sEl...


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