Calculating Cash Conversion Cycle period based on Inventory conversion period, Receivable Collection period and Payable Credit Period.
The Saliford Corporation has an inventory conversion period of 60 days, a receivables collection period of 36 days, and a payables deferral period of 24 days.
a. What is the length of the firm's cash conversion cycle?
b. If Saliford's annual sales are $3,960,000 and all sales are on credit, what is the average balance in accounts receivables? (Hint: The accounts receivable balance should equal the average age of the receivables, which is the collection period times the daily sales.)
c. What would happen to Saliford's cash conversion cycle if, on average, the length of time that products remain in inventory is shortened to 45 days?