Costco has the following data for 2014 in million dollars CO

Costco has the following data for 2014 (in million dollars):

COSTCO

Net sales

112,640

Cost of goods sold

98,458

Accounts payable

8,491

Total inventories

8,456

Accounts receivable

791

What is their inventory flow time?

What is the company’s flow time for accounts payable? How about the flow time for accounts receivable?

What is the average cash-to-cash flow time for Costco in 2014?

Solution

Inventory Flow Time = 365 * Total Inventories / Cost of Goods Sold
Inventory Flow Time = 365 * $8,456 / $98,458
Inventory Flow Time = 31.35 days

Flow Time for Accounts Payable = 365 * Accounts Payable / Cost of Goods Sold
Flow Time for Accounts Payable = 365 * $8,491 / $98,458
Flow Time for Accounts Payable = 31.48 days

Flow Time for Accounts Receivable = 365 * Accounts Receivable / Net Sales
Flow Time for Accounts Receivable = 365 * $791 / $112,640
Flow Time for Accounts Receivable = 2.56 days

Cash to Cash Flow Time = Flow Time for Accounts Receivable + Inventory Flow Time - Flow Time for Accounts Payable
Cash to Cash Flow Time = 2.56 days + 31.35 days - 31.48 days
Cash to Cash Flow Time = 2.43 days