Canadian Products is concerned about managing its operating assets and liabilities efficiently. Inventories have an average age of 110 days, and accounts receivable have an average age of 50 days.
Accounts payable are paid approximately 40 days after they arise. The firm has annual sales of $36 million, its cost of goods sold represents 75 percent of sales, and its purchases represent 70 percent of cost of goods sold. Assume a 365-day year.
a. Calculate the firm's operating cycle (OC).
b. Calculate the firm's cash conversion cycle (CCC).
c. Calculate the amount of total resources Canadian Products has invested in its CCC.
d. Discuss how management might be able to reduce the amount of total resources invested in the CCC.