The Butler-Huron Company's balance sheet and income statement for last year are as follows:
Balance Sheet (in Millions of Dollars)
|
Assets
|
|
Liabilities and Equity
|
|
|
Cash and marketable securities
|
$ 103
|
Accounts payable***
|
$1,166
|
|
Accounts receivable*
|
1,138
|
Accrued liabilities
|
|
|
Inventories**
|
1,827
|
(salaries and benefits)
|
536
|
|
Other current assets
|
39
|
Other current liabilities
|
493
|
|
Total current assets
|
$3,107
|
Total current liabilities
|
$2,195
|
|
Plant and equipment (net)
|
3,523
|
Long-term debt and other
|
|
|
Other assets
|
54
|
liabilities
|
2,736
|
|
Total assets
|
$6,684
|
Common stock
|
105
|
|
|
|
Retained earnings
|
1,648
|
|
|
|
Total stockholders' equity
|
$1,753
|
|
|
|
Total liabilities and equity
|
$6,684
|
*Assume that all sales are credit sales and that average accounts receivable are the same as ending accounts receivable.
**Assume that average inventory over the year was the same as ending inventory.
***Assume that average accounts payable are the same as ending accounts payable.
Income Statement (in Millions of Dollars)
|
Net sales
|
$13,644
|
|
Cost of sales
|
9,890
|
|
Selling, general, and administrative expenses
|
2,264
|
|
Other expenses
|
812
|
|
Total expenses
|
$12,966
|
|
Earnings before taxes
|
678
|
|
Taxes
|
268
|
|
Earnings after taxes (net income)
|
$ 410
|
a. Determine Butler-Huron's cash conversion cycle.
b. Determine Butler-Huron's cash conversion cycle assuming that 75 percent of annual sales are credit sales (i.e., 25 percent represent cash sales).
c. Determine Butler-Huron's cash conversion cycle assuming that 50 percent of annual sales are credit sales.