Problem: The Garcia Industries balance sheet and income statement for the year 2006 are as follows:
Assets Liabilities and Stockholder's Equity
Cash $6.0 Account payable $10.0
Account receivables $14.0 Salaries, benefits, and payroll
taxes payable $2.0
Inventories $12.0 Othe current liabilities $10.0
Fixed assets, net $40.0 Long-term debt $38.0
$72 Stockholder's equity $72.0
*The average inventory over the past 2 years also equals $12.0 million.
Income statement(in million of dollars)
Net sales $100.0
Cost of Sales $60.0
Selling general and administrative expenses $20.0
Other expenses $15.0
Net income $5.0
a- Determine the length of the inventory conversion period.
b- Determine the length of the receivables conversion period.
c- Determine the length of the operating cycle.
d- Determine the length of the payables deferral period.
e- Determine the length of the cash conversion cycle.
f- What is the meaning of the number you calculated in (e)?