Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? Annual sales = $45,000
Annual cost of goods sold = $30,000
Inventory = $4,500
Accounts receivable = $1,800
Accounts payable = $2,500
A) 28 days
B) 32 days
C) 35 days
D) 39 days
E) 43 days

Question

Quizplus · Accepted Answer

The cash conversion cycle is calculated as: Inventory Conversion Period + Receivables Collection Period - Payables Deferral Period. Inventory Conversion Period = (Inventory / COGS) * 365 = (4500 / 30000) * 365 = 54.75 days. Receivables Collection Period = (Accounts Receivable / Sales) * 365 = (1800 / 45000) * 365 = 14.6 days. Payables Deferral Period = (Accounts Payable / COGS) * 365 = (2500 / 30000) * 365 = 30.42 days. Cash Conversion Cycle = 54.75 + 14.6 - 30.42 = 38.93 days, approximately 39 days.

Desai Inc Has the Following Data, in Thousands