Given the following financial statement data, calculate the operating cycle for this company. how long is the net operating cycle (=cash conversion cycle) for this company.
credit sales = $25,000 mil
cogs=420,000 mil
accounts receivable= $2,500 mil
inventory – beginning balance = $2,000 mil
inventory – ending balance = $2,300 mil
accounts payable=$1,700 mil

Explanation:

The computation of the operating and the cash cycle is shown below:

The operating cycle = Days inventory outstanding + days sale outstanding

where,

Day inventory outstanding = (Beginning inventory + ending inventory) ÷ cost of goods sold × number of days in a year

= ($2,000 + $2,300) ÷ $420,000 × 365 days

= ($4,300 ÷ $420,000) × 365 days

= 3.73 days

Day sale outstanding = (Beginning Accounts receivable + ending Accounts receivable) ÷ Net sales × number of days in a year

= ($2,500 + $0) ÷ $25,000 × 365 days

= ($4,200 ÷ $25,000 ) × 365 days

= 36.5 days

Now put these days to the above formula  

So, the days would equal to

= 3.73 days + 36.5 days

= 40.23 days

Now The cash cycle = Days inventory outstanding + days sale outstanding - days payable outstanding  

where,  

Day payable outstanding = (Beginning Accounts payable + ending Accounts payable) ÷ cost of goods sold × number of days in a year

= ($0 + $1,700) ÷ $420,000 × 365 days

= ($1,700 ÷ $420,000) × 365 days

= 1.47 days

Now put these days to the above formula  

So, the days would equal to

=  3.73 days + 36.5 days - 1.47 days

= 38.76 days

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