Home Depot’s cash conversion cycle for the period 2012-2016 follows:

Amount in days	2016	2015	2014	2013	2012
Days sales outstanding (DSO)	6.96	6.32	6.47	6.45	6.04
Days inventory outstanding (DIO)	71.7	73.74	76.55	78.49	82.88
Days payable outstanding (DPO)	-38.76	-38.65	-39.29	-38.18	-37.87
Cash conversion cycle	39.9	41.41	43.73	46.76	51.05

Cost of goods sold in the year 2016 was $58,254 million. 

Based on the above information, answer the following questions.

1. By how many days DIO has changed over the period from 2012 to 2016? What is the change in the year 2016 from 2015? How much additional cash was available as a result in 2016 relative to 2012? How much additional cash was available as a result in 2016 relative to 2015?

2. By how many days DPO has changed over the period from 2012 to 2016? What is the change in the year 2016 from 2015? How much additional cash was available as a result in 2016 relative to 2012? How much additional cash was available as a result in 2016 relative to 2015?

3. What is the potential problem that may occur in case of excessive delay in supplier payment? Explain. What should a company do in this area?

4. What is the implication of shortened cash conversion cycle over time for the company’s overall liquidity? What is the aggregate effect of changes in DIO and DPO on Home Depot’s liquidity position over the five-year period?

Answer rating: 100% (QA)

1 To calculate the change in Days Inventory Outstanding DIO over the period from 2012 to 2016 we subtract the DIO for 2012 from the DIO for 2016 DIO change DIO 2016 DIO 2012 717 8288 1118 days The cha... View the full answer