1215

An analyst has collected the following data about a firm:

• Receivables turnover = 20 times. 
• Inventory turnover = 16 times. 
• Payables turnover = 24 times.

What is the cash conversion cycle?

A) Not enough information is given.

B) 26 days.

C) 56 days.

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Cash conversion cycle = receivables collection period + inventory processing period – payables payment period.

Receivables collection period = (365 / 20) = 18
Inventory processing period = (365 / 16) = 23
Payables payment period = (365 / 24) = 15
Cash conversion cycle = 18 + 23 – 15 = 26

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1215

Which of the following items is NOT in the numerator of the quick ratio?

A) Inventory.

B) Cash.

C) Receivables.

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Quick ratio = (cash + marketable securities + receivables) / current liabilities

Current ratio = (cash + marketable securities + receivables + inventory) / current liabilities

1215

If the inventory turnover ratio is 7, what is the average number of days the inventory is in stock?

A) 70 days.

B) 52 days.

C) 25 days.

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Average Inventory Processing Period = 365 / inventory turnover = 365 / 7 = 52 days.

1215

Using a 365-day year, if a firm has net annual sales of $250,000 and average receivables of $150,000, what is its average collection period?

A) 219.0 days.

B) 1.7 days.

C) 46.5 days.

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Receivables turnover = $250,000 / $150,000 = 1.66667

Collection period = 365 / 1.66667 = 219 days

1215

Goldstar Manufacturing has an accounts receivable turnover of 10.5 times, an inventory turnover of 4 times, and payables turnover of 8 times. What is Goldstar’s cash conversion cycle?

A) 6.50 days.

B) 80.38 days.

C) 171.64 days.

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The cash conversion cycle = average receivables collection period + average inventory processing period – payables payment period. The average receivables collection period = 365 / average receivables turnover or 365 / 10.5 = 34.76. The average inventory processing period = 365 / inventory turnover or 365 / 4 = 91.25. The payables payment period = 365 / payables turnover ratio = 365 / 8 = 45.63. Putting it all together: cash conversion cycle = 34.76 + 91.25 – 45.63 = 80.38.

1215

Given the following income statement:

Net Sales	200
Cost of Goods Sold	55
Gross Profit	145
Operating Expenses	30
Operating Profit (EBIT)	115
Interest	15
Earnings Before Taxes (EBT)	100
Taxes	40
Earnings After Taxes (EAT)	60

What are the gross profit margin and operating profit margin?

Gross Profit Margin

Operating Profit Margin

A) 2.630 1.226

B) 0.725 0.575

C) 0.379 0.725

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Gross profit margin = gross profit / net sales = 145 / 200 = 0.725

Operating profit margin = EBIT / net sales = 115 / 200 = 0.575