WORKING CAPITAL MANAGEMENT
IBC supplies their products to both New Zealand and offshore clients. Their credit terms are net 60 from end of month and all sales are on credit. In 2015 IBC had credit sales of $20.6 million. Their cost of goods sold is 65% of sales and their purchases are 75% of cost of goods sold.
The average age of inventory is 80 days and the average collection period is 70 days. They have an average payment period of 40 days.
Calculate IBC’s operating cycle.
Calculate IBC’s cash conversion cycle.
Calculate the financing required for IBC’s cash conversion cycle to two decimal places. Assume a 365 day year.