Calculate the sale-to-cash conversion period based on the following information:
average inventories = $120,000;
average receivables = $85,000;
average payables = $40,000;
cost of goods sold = $182,500;
and net sales = $325,000.

Cash conversion period = 255.46 days

Explanation:

The sale-to-cash conversion period is the average length of time between when payment is made to suppliers for goods purchased and when cash are received form customers in respect of sales. The shorter the better because  the period indcates how much working finance a business would need .

It is calculated as follows

Cash conversion period = Inventory days + receivable days - Payable days

Inventory days

=(Average inventory/cost of goods)× 365

=(120,000/182,500) × 365

=240 days

Receivable days

=Average receivable/Credit sales× 365

=(85,000/325,000)× 365 days

= 95.46 days

Payable days

= Average payable days/cost of goods × 365days

= 40000/182,500 × 365 days

= 80 days

Sales to cash conversion  period

= 240 + 95.46 - 80

= 255.46 days

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