You have been hired as a financial consultant to help improve the performance of Blue Star Inc., which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of the analysis, you want to determine the firm's cash conversion cycle. Use the following information and a 365-day year to answer the questions below.
Average inventory = $75,000
Annual sales = $600,000
Annual cost of goods sold = $360,000
Average accounts receivable = $160,000
Average accounts payable = $25,000
Question 1: Determine the inventory conversion period for Blue Star. Check figure: Inventory conversion period = 76.0 days.
Question 2: Determine the average collection period for the company.
Question 3: How long is Blue Star's cash conversion cycle in terms of number of days?