Beg Class Ch 21 - CHAPTER 21 Supply Chains and Working...

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CHAPTER 21 Supply Chains and Working Capital Management Beginning of Class Discussion 1
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2 Kohli Computer Corporation expects sales of $450 million next year, and its cost of goods sold should be 380 million. Also, its inventory should average $30 million, its receivables $45 million, and its payables $30 million. What is Kohli's expected CCC? Sales $450 Cost of Goods Sold (COGS) $380 Inventories $35 Accounts Receivable $25 Accounts Payable $30 Days/year 360
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Cash Conversion Cycle 3 The cash conversion cycle focuses on the time between payments made for materials and labor and payments received from sales: Cash Conversion = Cycle Inventory Conversion + Period Average Collection Period Payable s Deferral Period
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Cash Conversion Cycle (Cont.) Inventory Con = 35 /(380/360) = 33 Rec Collection = 25 /(450/360) = 20 Payables Deferral = 30/(380/360) = 28 4
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Cash Conversion Cycle (Cont.) 5 CCC = + CCC = 33 + 20 – 28 CCC = 25 days. Inventory conversion period Payables deferral period Days sales outstanding
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Additional Questions: 6 Disregarding profits, how much capital does Kholi have tied up in working capital?
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