Answer :
16) The Cash Conversion Cycle (CCC) is calculated as 72.6 days. Evaluating SBD's CCC in the context of its industry can determine whether it is appropriately managing its working capital and if there are areas for improvement.
Based on the provided calculations, SBD's productivity analysis for 2019 reveals a Days Sales Outstanding (DSO) of 31.8 days, indicating the average number of days it takes for the company to collect payments from customers. The Days Inventory Outstanding (DIO) is calculated as 141.6 days, representing the average number of days it takes for SBD to sell its inventory. The Days Payable Outstanding (DPO) is determined to be 100.8 days, representing the average number of days it takes for the company to pay its suppliers. The Cash Conversion Cycle (CCC) is calculated as 72.6 days, which indicates the time it takes for SBD to convert its resources into cash.
The productivity analysis of SBD's working capital components provides insights into how effectively the company manages its resources and generates cash flow. The Days Sales Outstanding (DSO) of 31.8 days suggests that, on average, it takes approximately 31.8 days for SBD to collect payments from its customers. A lower DSO indicates better management of accounts receivable and faster cash collection, contributing positively to the company's cash flow and liquidity.
The Days Inventory Outstanding (DIO) of 141.6 days indicates that it takes SBD approximately 141.6 days to sell its inventory. A higher DIO suggests a longer inventory holding period, which may lead to increased carrying costs and potential obsolescence risks. It is important for SBD to monitor and manage its inventory levels effectively to optimize working capital and minimize associated costs.
The Days Payable Outstanding (DPO) of 100.8 days suggests that, on average, it takes SBD approximately 100.8 days to pay its suppliers. A longer DPO implies that the company takes more time to settle its payables, which can positively impact cash flow by extending the payment period and providing additional working capital.
The Cash Conversion Cycle (CCC) of 72.6 days represents the time it takes for SBD to convert its resources into cash. A shorter CCC indicates more efficient management of working capital, as it reflects the time between cash outflows for inventory and cash inflows from sales. SBD's CCC of 72.6 days suggests relatively effective management of its working capital components.
To assess SBD's productivity component of Return on Equity (ROE), a deeper analysis is required, considering other financial metrics and industry benchmarks. Comparing SBD's CCC with its competitors, specifically Snap On, would provide insights into how well SBD is performing in terms of converting its resources into cash compared to industry peers.
Learn more about Return on Equity (ROE) here:
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