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    The document calculates key financial metrics for a company over two years: 1) The operating cycle was 47 days in 2009 and the cash conversion cycle was 27 days, meaning it takes the company 47 days to turn inventory into sales and 27 days to turn those sales into cash. 2) The average investment in accounts receivable was Rs. 847336224 in 2009 and Rs. 674784859 in 2008, showing higher investment needed to fund receivables. 3) The additional profit earned in 2009 over 2008 was Rs. 429597323.

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    The document calculates key financial metrics for a company over two years: 1) The operating cycle was 47 days in 2009 and the cash conversion cycle was 27 days, meaning it takes the company 47 days to turn inventory into sales and 27 days to turn those sales into cash. 2) The average investment in accounts receivable was Rs. 847336224 in 2009 and Rs. 674784859 in 2008, showing higher investment needed to fund receivables. 3) The additional profit earned in 2009 over 2008 was Rs. 429597323.

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    11 views2 pages

    Question

    Uploaded by

    pakeeza786
    The document calculates key financial metrics for a company over two years: 1) The operating cycle was 47 days in 2009 and the cash conversion cycle was 27 days, meaning it takes the company 47 days to turn inventory into sales and 27 days to turn those sales into cash. 2) The average investment in accounts receivable was Rs. 847336224 in 2009 and Rs. 674784859 in 2008, showing higher investment needed to fund receivables. 3) The additional profit earned in 2009 over 2008 was Rs. 429597323.

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    of 2

    Calculate the operating cycle, cash conversion cycle and the average investment in accounts receivable.

    1. Operating cycle:
    = Average age of inventory + average collection period

    =12+35

    =47 days

    2. Cash conversion cycle:


    Average age of inventory + average collection period + average payment period

    =12+35-20

    =27days

    3. Average investment in accounts receivable


    Total variable cost of annual sales ÷ turnover of accounts receivable

    Where,

    Turnover of accounts receivable

    =360÷average collection period

    YEAR 2009 YEAR 2008

    =8473362242÷360÷35 =8097418309÷360÷30

    =Rs.847336224 =Rs.674784859
    Additional profit:
    YEAR 2009 YEAR 2008

    Rs. Rs.

    SALES 9964545471 9138298052

    COST OF SALES 8473362242 8097418309

    GROSS PROFIT 1491183229 1040879743

    Additional profit

    =1491183229-1040879743

    =Rs.450303486

    =847336224-674784859

    =172551365×12%

    =20706163

    =20706163-450303486

    =429597323

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