Level 3: Debt and cash · Exercise 33 of 60 · Pro

Cash conversion cycle from the balance sheet

A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.

The task

Five years of history are given. Fill the implied receivable days (row 11: receivables over revenue times 365), inventory days (row 12) and payable days (row 13), both over cost of goods sold, then the cash conversion cycle (row 14: receivable days plus inventory days less payable days) and, in B16, the average cycle over the five years with AVERAGE.

What this exercise teaches

The cycle is how many days cash is tied up between paying suppliers and collecting from customers. Working the days out from history is what justifies the day assumptions used in a forecast; dividing payables by revenue is the usual error and understates payable days.

A hint if you get stuck

Days = balance / the flow it builds from x 365. Receivables come from sales, so use revenue; inventory and payables are carried at cost, so use cost of goods sold.

Functions used: AVERAGE