Series 79: 3.1.5.4. Example Cash Conversion Cycle

Taken from our Series 79 Online Guide

3.1.5.4. Example Cash Conversion Cycle

To show how the elements of the cash conversion cycle come together, let’s look at the actual figures for a publicly traded company that operates a chain of natural foods supermarkets for a recent 12-month period. The numbers in the example are taken from the company’s balance statements and income statements.

All Figures in Thousands

As of Year 1

As of Year 2

Inventory

323,487

310,602

Accounts Receivable

133,346

104,731

Accounts Payable

213,212

189,597

Sales (for previous 12 months)

9,005,794

Cost of Goods Sold and Occupancy Costs (for prior 12 months)

5,870,393

Since these figures are in thousands, we’ll keep them that way for now to avoid having to track the extra zeros.

Recall that the cash conversion cycle equals:

days inventory outstanding + days sales outstanding –
days payable outstanding

To determine the company’s cash conversion cycle, we’ll first need to calculate each component of the equation.

Starting with days inventory outstanding, the average inventory for the year is 317,044.5 ((323,487 + 310,602) / 2). The cost of goods sold is 5,870,393. The inven

Since you're reading about Series 79: 3.1.5.4. Example Cash Conversion Cycle, you might also be interested in:

Solomon Exam Prep Study Materials for the Series 79
Please Enable Javascript
to view this content!