The Greek Connection had sales of $32 million in 2012, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:
| THE GREEK CONNECTION
Balance Sheet
As of December 31, 2012 (in $ thousand) |
|
Assets Liabilities and Equity |
| Cash $ 2,000 Accounts payable $ 1,500
Accounts receivable 3, 950 Notes payable 1000
Inventory 1,300 Accruals 1,220 |
| Total Current Assets $7,250 Total Current Liabilities $3720
Long Term Debt 3000 |
| Net plant, property, Total liabilities $ 6,720
and equipment $ 8,500 Common equity 9,030 |
| Total assets $ 15,750 Total liabilities and equity $ 15,750 |
a.
Calculate The Greek Connection’s net working capital in 2012.
- Calculate the cash conversion cycle of The Greek Connection in 2012.
- The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 had it matched the industry average for accounts receivable days?
Calculate The Greek Connection’s net working capital in 2012.
Greek Connection = 7,250 – 3,720 = 3,530
- Calculate the cash conversion cycle of The Greek Connection in 2012.
CCC = Days inventory outstanding + Days sales outstanding – Days payable outstanding
= 1300/(20000/365) + 3950/(32000/365) – 1500/(20000/365)
= 23.7 + 45.1 – 27.4
= 41.4 days
- The industry average accounts receivable days is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2012 had it matched the industry average for accounts receivable days?
CCC = 23.7 + 30 – 27.4 = 26.3 Days
Trade Credit
