Problem:
The Chickman Corporation has an inventory conversion period of 60 days, a receivables collection period of 30 days, and a payables deferral period of 30 days. Its annual credit sales are $6,000,000, and its annual cost of goods sold (COGS) is 60% of sales.
Requirement:
Question 1: What is the length of the firm's cash conversion cycle?
Question 2: What is the firm's investment in accounts receivable?
Question 3: What is the company's inventory turnover ratio?
Question 4: Identify three ways in which the company could reduce its cash conversion cycle? What are the possible risks of reducing it?
Note: Provide support for rationale.