You have the following balance sheet and income statement in

You have the following balance sheet and income statement information for Epic Corp.:

All sales and purchases were on credit.

1. What is the firm\'s days\' sales in inventory (in days)?
2. What is its average collection period (in days)?
3. What is its average payment period (in days)?
4. How long is the operating cycle (in days)?
5. How long is the cash cycle (in days)?

Line item	Amount
Accounts receivable (A/R)	$2,160
Inventory	$4,080
Accounts payable (A/P)	$1,110
Sales	$6,800
Cost of goods sold	$5,440

Solution

1) Days\' sales in inventory (DSI) = Average Inventory / COGS x 365 days Days\' sales in inventory (DSI) = $4080/$5440 x 365 273.75 Days 2)Average collection period (in days) DSO = Accounts Receivables/Sales x 365 Days Average collection period (in days) = $2160/$6800 x 365 days 115.94 Days 3) Days payable outstanding (DPO) = A/P/ COGS x 365 days Days payable outstanding (DPO) = $1110/$5440 x 365 74.48 Days 4) Operating Cycle (Days) = DSI + DSO Operating Cycle (Days) = 273.75 + 115.94 389.69 Days 5) CCC = DSI + DSO - DPO CCC = 273.75 + 115.94 - 74.48 315.22 Days