ABC Company Ltd. has annual revenues of $750 million and annual cost of goods sold of $450 million. Annual cash flows from operations are $51 minion, while daly credit sales were $163,548. It published its annual report for the financial year 2021-22 ending, with the following balance sheet items as at 31 march 2022: Ending inventory: $82 million

Managerial Accounting: The Cornerstone of Business Decision-Making
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Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
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Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 14BEA: Last year, Nikkola Company had net sales of 2.299.500,000 and cost of goods sold of 1,755,000,000....
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ABC Company Ltd. has annual revenues of $750 million and annual cost of goods sold of $450 million. Annual cash flows from operations are $51 minion, while daly credit sales were $163,548. It published its annual report for the financial year 2021-22 ending, with the following balance sheet items as at 31 march 2022:

  • Ending inventory: $82 million
  • Ending accounts receivable: $56 million
  • Ending accounts payable: $43 million

 

ABC Co. Lid, treasurers forecast the following balance pattern for monthly

collections:

  • Month 0: 5%
  • Month 1: 40%
  • Month 2 35%
  • Month 3: 15%
  • Month 4: 5%

 

Required:

a) Calculate the Cash Conversion Cycle (CCC) for the company and discuss measures the company could adopt to shorten its CCC.

b) What percentage of outstanding sales proceeds are yet to be collected as receivables 3 months after the sales were invoiced?

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