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a. The Kretovich Company seeks the following financial statistics in the coming year to attain a competitive advantage over its industry competitors. Quick ration = 1.4 Current ratio = 3.0 DSO = 36.5 days on a 365-day year. Its total current assets = $800,000 and cash and marketable securities of $100,000. Based on the data given, what is Kretovich’s estimated revenue or sales at year end? Suppose Kretovich’s pays its suppliers of materials every 30 days, that is, the firm’s days payables outstanding is 30 days, what is the speed at which Kretovich Company accrues cash flows? Hint, find the company’s cashflow conversion cycle.

Sagot :

Anthougoidn

1) Based on the data given, Kretovich Company's estimated revenue or sales at year-end is $2,780,000.

2) The speed at which Kretovich Company accrues cash flows if it pays its suppliers every 30 days is 61.5 days, which is given by the cash conversion cycle.

What is the cash conversion cycle?

The cash conversion cycle represents the days that it takes for a company to convert its investments in inventory and other resources into cash flows from sales.

The cash conversion cycle can be computed with the following formula:

Cash Conversion Cycle = DIO + DSO – DPO

Where:

DIO = Days Inventory Outstanding

DSO = Days Sales Outstanding

DPO = Days Payable Outstanding

Data and Calculations:

Quick ratio = 1.4

Current ratio = 3.0

DSO = 36.5 days on a 365-day year.

Current assets = $800,000

Cash and marketable securities = $100,000

Using the current ratio of 3.0, the current liabilties = $270,000 ($800,000/3.0)

Current assets other than inventory = $378,000 ($370,000 x 1.4)

Inventory = $422,000 ($800,000 - $378,000)

Accounts receivable = $278,000 ($800,000 - $422,000 - $100,000)

Sales revenue = $2,780,000 ($278,000 x 365/36.5)

DIO = average (or ending) inventory balance by COGS and multiplying by 365 days.

Here, we shall use the sales figure in place of the cost of goods sold as follows:

DIO = $422,000/$2,780,000 x 365

= 55 days

Cash conversion cycle (or DIO + DSO – DPO).

= 61.5 days (55 + 36.5 - 30)

Learn more about the cash conversion cycle at https://brainly.com/question/17439117

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