Explanation:
The computation is shown below
The length of the cash conversion cycle is
= Inventory conversion period + average collection period - payable deferral period
= 64 days + 28 days - 41 days
= 51 days
Now the investment in account receivable is
= $2,578,235 ÷ 365 ÷ 28 days
= $197,782.411
And, the inventory turnover ratio is
Inventory turnover ratio = Sales ÷ inventory
where,
Sales = $2,578,235
And, the inventory is
75 = Inventory ÷ [(0.75 × $2,578,235) ÷ 365]
So, the inventory is $397,330.736
Now the inventory turnover ratio is
= $257,8235 ÷ $397,330.736
= 6.488 times
