Shulman Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?

Annual sales = $45,000

Annual cost of goods sold = $30,000

Inventory = $4,500

Accounts receivable = $1,800

Accounts payable = $2,500

A. 28 days

B. 32 days

C. 35 days

D. 39 days

E. 43 days

Option (D) is correct.

Explanation:

Inventory conversion period:

= (365 days * Inventory) : Cost of goods sold

= (365 days * 4,500) : 30,000

= 54.75

Average collection period:

= (365 days * Accounts receivable) : sales

= (365 days * $1,800) : 45,000

= 14.60

Payable deferral period:

= (365 days * Accounts payable) : COGS

= (365 days * $2,500) : 30,000

= 30.42

cash conversion cycle:

= Inventory conversion period + Average collection period - Payable deferral period

= 54.75 + 14.60 - 30.42

= 38.93 or 39 days