Company cash conversion cycle


Problem:

Edison Inc. has annual sales of $36,500,000, or $100,000 a day on a 365-day basis. The firm's cost of goods sold is 75% of sales. On average, the company has $9,000,000 in inventory and $8,000,000 in accounts receivable. The firm is looking for ways to shorten its cash conversion cycle. Its CFO has proposed new policies that would result in a 20% reduction in both average inventories and accounts receivable. She also anticipates that these policies would reduce sales by 10%, while the payables deferral period would remain unchanged at 35 days.

Required:

Question: What effect would these policies have on the company's cash conversion cycle?

Note: Provide specific examples to support your answers.

Request for Solution File

Ask an Expert for Answer!!
Accounting Basics: Company cash conversion cycle
Reference No:- TGS0888673

Expected delivery within 24 Hours