Accounting for Managers: Cash Conversion Cycle, Profit Analysis and Special Order Costing

ACCOUNTING FOR MANAGERS

Contents
Solution 1:..................................................................................................................................2
Solution 2:..................................................................................................................................3
Solution 3:..................................................................................................................................6
Part 1.......................................................................................................................................6
Part 2.......................................................................................................................................7
Bibliography...............................................................................................................................8

Solution 1:
The net estimated time taken to receive and make all payments is known as the cash
conversion cycle. A shorter cash conversion cycle is always considered to be favourable for
the company. It helps to determine and maintain the liquidity position of the company. It is a
known fact that it is important for the company to have an adequate liquidity so that it does
not affect the performance and profitability of the company. The cash conversion cycle is
calculated by adding debtor’s period and inventories period and subtracting creditor’s period
from it. (Atkinson, 2012)
The following table shows the calculation of cash conversion cycle of Cash convertors
international limited for a period of five years:
Particulars 2017 2016 2015 2014 2013
Inventory
20,99
1 17,612 27,684
25,56
2 21,783
Debtors
7,57
4 13,651 28,120
29,44
3 13,032
Creditors
21,28
8 19,821 26,450
26,79
4 20,048
Cogs
97,80
3 1,09,084 1,38,457 1,18,869 94,158
Sales 2,71,473 3,09,995 3,74,893 3,31,669 2,72,723
Inventory Turnover
7
2 76
7
0 73 42
Debtor Turnover
1
4 25
2
8 23 9
Creditor Turnover
7
7 77
7
0 72 39
Cash Cycle
1
0 23
2
8 24 12

From the above table, it is observable that the cash conversion cycle is the lowest of the five
years. However, we can also see that there has been an increasing period over the five years.
The inventory has been moving faster because of which there has been an increase in the
production as well as sales volume. We can conclude that the company is at a good liquidity
position as it is able to settle it in 10 days.
There has been an increase in the cash inflows when compared to the previous years. (Datar
M. S., 2015) This increase is mainly because of the increase of cash inflow from operating
activities by $700000. This huge difference was cause because the company has tax refund
this year while it had to pay taxes in the last year.