Hollingsworth Candy Products has an inventory turnover of six times per year, a receivablesturnover of 10 times, and a payables turnover of 12 times. What is Hollingsworth’s inventoryconversion period, the receivables collection period, and its payables deferral period? What is its cash conversion cycle? Show work
Cash Conversion Cycle = Inventory Conversion Period + Receivables Collection Period – Payables Deferral Period
here we have been given that,
.
Inventory Turnover = Sales/Average Inventory
Inventory Turnover= 6 time per year
Inventory Conversion Period = 365/Inventory Turnover
=365 /6
=60.83
inventoryconversion period = 60.83 days
Accounts Receivable Turnover = Sales/Average Accounts Receivable
Accounts Receivable Turnover= 10 times
Receivables Collection Period (Days Sales Outstanding) = 365/Accounts Receivable Turnover
=365/10
=36.5
receivables collection period =36.5 days
Accounts Payable Turnover = Sales/Average Accounts Payable
Accounts Payable Turnover =12 times
Accounts Payable Deferral Period = 365/Accounts Payable Turnover
=365/12
=30.42
payables deferral period = 30.42 days
Now we put the figures in to the formulla as follow
Cash Conversion Cycle = Inventory Conversion Period + Receivables Collection Period – Payables Deferral Period
=60.83 +36.5 +30.42
=127.75 days
