From the course: Financial Accounting Part 2
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Real-world: Procter & Gamble
From the course: Financial Accounting Part 2
Real-world: Procter & Gamble
- Okay, consider Procter & Gamble, for example. They make Tide laundry detergent, Pampers diapers, and Dawn dishwashing liquid to name a few. On average, it takes them across all their product brands about 50 days to turn raw materials into inventory and sell it. They then wait about 25 days before receiving the cash from the customers to whom they sold it, customers like Walmart, Walmart's their biggest customer. So their operating cycle is 75 days, 50 days to turn raw materials into inventory and sell it, and then 25 days to collect the cash from that sale. Now, that may seem like a long time from start to finish, from raw materials to inventory, to account receivable to cash. Now, how long does Procter & Gamble have before they have to pay for the inventory they purchased? In other words, what is their days' purchases in payables? Again, we adjust their cost to sales for changes in their inventory balances over the year,…
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