For Cash Conversion Cycle - When working out (DIO) (DSO) and (DPO) - - - Do you include the decimal places in these equations. For example if I dvidied the cost of goods sold by 365 - and the answer was 51.94 / would I do this as 52, 51 or 51.94 in the equation.
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IS MY LECTURER RIGHT OR WRONG
So I have been doing cash conversion cycle at uni and my lecturer is often wrong on things.
For Cash Conversion Cycle - When working out (DIO) (DSO) and (DPO) - - - Do you include the decimal places in these equations. For example if I dvidied the cost of goods sold by 365 - and the answer was 51.94 / would I do this as 52, 51 or 51.94 in the equation.
By financenoob
Joined 12 Nov 2020
So. (I hate that).
You claim your lecturer is often wrong, but do not state what their view is.
As a degree student you must have a view and be able to articulate why you hold that view.
So. (!) Please give your view and reasonings.
(Odd tagging!)
IS MY LECTURER RIGHT OR WRONG
So I have been doing cash conversion cycle at uni and my lecturer is often wrong on things.
financenoob wrote:
For Cash Conversion Cycle - When working out (DIO) (DSO) and (DPO) - - - Do you include the decimal places in these equations. For example if I dvidied the cost of goods sold by 365 - and the answer was 51.94 / would I do this as 52, 51 or 51.94 in the equation.
By financenoob
Joined 12 Nov 2020So. (I hate that).
You claim your lecturer is often wrong, but do not state what their view is.
As a degree student you must have a view and be able to articulate why you hold that view.
So. (!) Please give your view and reasonings.
(Odd tagging!)
Maybe of theoretical interest however don't overlook the fact that some things taught at school / university are rarely / never used in the real world.
In a previous life, I worked for a UK co of a giant German group with global presence. We had to report on every kind of days you can think of: debtor, stock, creditor, calendar days both as numbers and written commentary. It was the most pointless exercise I have ever done!
On an aside, they were the only organisation I have seen which when implementing a new global reporting system which sat on top of the global GL system, adopted a % close enough when mapping the tb codes into the new headings: oh January is only 2% out on revenue from the underlying data for one month, that will do - go live!!
Well, it depends. If the question asked for answers to two decimal places, then 51.94 days would be correct. However, in the real world, we should be wary of spurious accuracy and rounding off to whole number of days i.e. 52 days would seem to be a more sensible answer. But ask your lecturer.
You need to consider
- why does anyone calculate these ratios - in other words, having calculated debtor days or whatever, what action does anyone take
- what difference does it make whether or not the result is rounded.
I'll give you a bit of help with that:
Most of the time, it's the trend that's important rather than the absolute number
There are all sorts of in-built inaccuracies:
- the debtor days calculation usually compares sales excluding VAT with sales including VAT. Not in itself a problem - unless the business exports (exports have nil VAT) and the proportion of exports varies from month to month.
- Seasonal trends and bank holidays create a lag - debtor days typically rise at the end of December because of lower sales in the month and payments due at the end of the month not being received until the new year.
- there may be varying payment terms - not everyone trades on 30 day terms.
Similar things are true for creditor days and stock.
Is your lecturer wrong? It *may* be that s/he has little experience of the real world application of these concepts.
Your lecturer might well work to a conveniently rounded decimal place in order to clearly convey a point to you and your cohort. That may not necessarily be to the actual real-world number of decimal places.
Your lecturers won't appreciate your undermining their assertions, and will mark your assignments accordingly. Get to know your lecturers: discover which of them prefer broad-brush statements to detailed analysis; plain simple graphs and charts or lots of colour; conventional wisdom to new ideas. Understand that they're always right; then you'll do well.
This.
In order to get your output right, learn what the rules are of the person setting the task, and their tolerance to your adherence to them.
Ah - well - the current calendar has a short cycle of 28 years, with an average of 365.25 days and a long cycle of 400 years, with an average of 365.2425 days.
Coincidentally, the long cycle also has a number of days divisible by 7, so we know that 13th November 2420 will also be a Friday.
The year is actually only 365.2422 days long, so we may need to drop a leap year to compensate in 3333 years time.
Coincidentally, the long cycle also has a number of days divisible by 7, so we know that 13th November 2420 will also be a Friday.
And for this reason, we also know that the 13th is a Friday more than it is any other day.
(There's no maths shortcut to prove that, you just have to count... bad luck.)
From wiki "On average, there is a Friday the 13th once every 212.35 days, whereas Thursday the 13th occurs only once every 213.59 days."
Friday is, in fact, the most common day on which the 13th of the month will fall.
How unlucky is that ?
Is that a posh way of saying what I said?
If it wasn't Friday 13th (and my brain wasn't frazzled) I could probably answer my own question. (I'll let you know tomorrow.)
Is that a posh way of saying what I said?
If the week consisted of only Thursdays and Fridays, yes.
I assume a) Thursdays come second and b) Red Leader wasn't boring us with the rest of the wikiweekee.
You should also have in mind who is doing the report and for what.
If you are external to the business, you only have published information to use, and have to go with what you have.
Internally, I have lists of outstanding invoices with amounts and days, so I use that to report my ageing, and weighted average.
If I have £1m over 1 month old, but then my next months sales is unusually high at £3m, my debtors days would miraculously improve, when, in reality, I still have £1m over 1 month old.
Having said that, I would always round the days if I was being asked to do this calc.
In 25 years as a management accountant, ie within an organisation, I have never run these calculations for ourselves.
I have used them as a means of project / investment appraisal for acquisitions.
It doesn't matter whether your lecturer is right or wrong. TBH if they knew that much about it they might be working for a living (i accept many go into this type of lecturing as some sort of semi-retirement, but generally those who cant..... teach).
What is important is that (s)he will be teaching you the answers and working processes necessary to pass your exams. If we would always round to a whole day but the exam board wouldn't (or the other way round) then all you care about at this point is satisfying the exam board.
Once you are qualified you can forget all this nonsense anyway.
And a good example of exam boards' working practices is where they compute tax calculations in whole months. They'll often have Henry buying and later selling his house or Barney opening and later closing his business on, conveniently, the first and last days of a month respectively; and then expect students to compute the sums in whole months (and, in case, you didn't know OP) rather than in real world whole days.
So 1st January to 30th June is 6/12 for your tax lecturer's purposes; unless you are minded to hack him off by telling him he's wrong and should be using 181/365 in his calculations. See what I'm getting at?
I always round it but I use debtor minutes instead of days and I don't think the extraneous seconds are important.
Welcome to AccountingWEB FN and thanks for your question - and to all of the members who have come forward with direct and indirect answers to your query, all of which add up to a very enlightening thread.
As you will have seen, there is a gallery of experienced accountants willing to share their wisdom and expertise with fellow professionals. But please don't take their generosity for granted.
In future, if you have a question, try to think through what you are looking to clarify (and why). If you share some of that context and perhaps explain the part that is puzzling you, you may find the quality of the answers you get improves.
As it is, I think we may have established that in some areas of accountancy the line between "right" and "wrong" can be quite blurry. Those who advised you that the lecturer is always right and to study their quirks gave me a big laugh.... But they are still right. I suspect it'll be just like that when you start working in business or practice.
If you share some of that context and perhaps explain the part that is puzzling you, you may find the quality of the answers you get improves.
Worth saying that (mine aside) I have been amazed at the (quality of the) answers to this question. But I agree with you - a more... a fuller and more precise question would not go amiss.