Paying for the goods once sold will be convenient for the firm since the firm

Paying for the goods once sold will be convenient for

This preview shows page 2 - 3 out of 3 pages.

Paying for the goods once sold will be convenient for the firm since the firm does not incur any extra costs on the good if it is not purchased. 5. Calculate Pearson’s cash conversion period. Interpret your computation. Cash conversion is the total time that elapses from the time a sale of a good or service is made and time of receipt of cash for the good sold. Cash conversion period=days in inventory + days in AR – days in AP Days in inventory = 365/ (COGS/inventory) 365* (466562/89562) = 70 days. Days in AR= 365/ (sales/AR)
Image of page 2
365* (727679/56753) = 28 days Days in AP = 365/ (COGS/AP) 365* (466562/38585) = 30 days Cash conversion period is 70+28-30 = 68 days. This shows that the company will suffer from liquidity risk as they pay suppliers before they collect from a debtor. The company may be increasing its investment in resources to improve on sales, the cash amount drops. 6.How could Pearson Air Conditioning & Service improve its working-capital situation?
Image of page 3

You've reached the end of your free preview.

Want to read all 3 pages?

  • Fall '13
  • Balance Sheet, Debt, Generally Accepted Accounting Principles, Pearson Air Conditioning, Pearson Air Conditioning & Service

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes