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Unformatted text preview: This suggests that it simply has excessive working capital, and that it should take steps to reduce its working capital. c. Now, calculate the firm’s cash conversion cycle. Assume a 365 day year. Answer: A firm’s cash conversion cycle is calculated as: . cycle conversion Cash period deferral Payables period collection s Receivable period conversion Inventory = − + SKI’s inventory turnover is given as 4.82 so we can calculate its inventory conversion period as: 82 . 4 365 turnover Inventory 365 = = 75.73 ≈ 76 DAYS. SKI’s receivables collection period is equal to its DSO. Its DSO is given as 45.63 days, or approximately 46 days. We are given that its payables deferral period is 30 days, so now we have all the individual components to calculate SKI’s cash conversion cycle. 76 days + 46 days – 30 days = 92 days. Thus, SKI’s cash conversion cycle is approximately 91 days. Mini Case: 22 - 16...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08