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Paying for the goods once sold will be convenient for the firm since the firm does not incur any extracosts 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 timeof receipt of cash for the good sold.Cash conversion period=days in inventory + days in AR – days in APDays in inventory = 365/ (COGS/inventory)365* (466562/89562) = 70 days.Days in AR= 365/ (sales/AR)
365* (727679/56753) = 28 daysDays in AP = 365/ (COGS/AP)365* (466562/38585) = 30 daysCash 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 froma debtor. The company may be increasing its investment in resources to improve on sales, the cashamount drops.6.How could Pearson Air Conditioning & Service improve its working-capital situation?
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Balance Sheet,Debt,Generally Accepted Accounting Principles,Pearson Air Conditioning,Pearson Air Conditioning & Service