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CASH CONVERSION CYCLE Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days.a. What is the length of the cash conversion cycle?b. If Zoccos annual sales are $3,421,875 and all sales are on credit, what is the investment in accounts receivable?c. How many times per year does Zocco turn over its inventory?
Solution: a. Cash conversion cycle = inventory conversion period + average collection period – payables deferral period = 75 + 38 – 30 = 83 Days b. Average collection period = 365/Debtors turnover ratio Debtors turnover ratio = Sales/accounts receivables Putting the values in the equation, we get: 38 = 365/1* receivables/3,421,875 Hence, receivables = 38*3421875/365 = $356,250…

nvestment in receivables = $356,250 c. Inventory conversion period = 365/Inventory turnover ratio Hence, 75 Days = 365/Inventory turnover ratio Inventory turnover ratio = 365/75 = 4.9 times Zocco turns inventory 4.9 i.e. 5 times (approx) during the year.


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