In this workout, we're being asked to calculate three things Inventory days, receivables days and payable days We're also told to use ending balances and we'll be doing this for all 5 years but I'll be focusing on year 1 So we have a balance sheet extract here and for inventory days, I can see the inventory line For receivables days, I can see the accounts receivable line And if I scroll down just a little bit for payable days, I can see the accounts payable line Now I need to divide them by certain items from the income statement And if we scroll down to the income statement extract, we can see those two lines Accounts receivable will be divided by revenue and inventory and accounts payable will be divided by cost of goods sold The last thing we need to do when calculating it is to multiply it by 365 So let's do the first one together For my inventory days (I'm going to press equals) and I'm going to take my inventory of 80.1 I'll then divide that by cost of goods sold for the same period and then I'll multiply that by the number of days in the period In this case 365, because we're looking at a year If I press enter, I get the length of time that we hold our inventory in the warehouse and that's 22.9 days I can then copy that formula to the right and I get the number of inventory days for each year Now I can do a similar calculation for receivable days For receivable days, again I go up and find my accounts receivable I divide that by and in this case it's revenue. A good way to remember it, is that your accounts receivable is revenue (sales that you've made) but hasn't been paid to you yet So there is a natural link between revenue and accounts receivable And I now multiply that by the number of days and that's 365 Now that comes out as 41.8 days That's the length of time that we give our customers to pay their bills If I copy that to the right, I can see what happens over time Now the length of time we're giving our customers is increasing dramatically over the period Year 1, we give them 41.8 days and by year 5 101.1. Yikes! Our cash being tied up has elongated very much so in time, in terms of receivables days Maybe there's something the company could do about that, maybe they could chase their customers a bit quicker and maybe enforce some payment periods Lastly, the payables period or payables days Here, I'll go up and find the accounts payable and I need to divide that by the COGS for the same period I now need to multiply that by the number of days in the period This case, again 365 And the payables days comes out at 27.6, that's the amount of time it's taken us to pay our suppliers If I copy that to the right I can see that's been increasing marginally over the period, over the 5 year period However, no where near as dramatic the change as we saw with the receivables days I think if the company were looking to focus its attention anywhere Definitely on its receivable days, try and chase your customers. Get them to pay a bit more promptly