Wislon has an inventory turnover rate of 15, a trade payables period of 54 days and a trade receivables period of 37 days.What is the length of the cash cycle?

Question

Quizplus · Accepted Answer

The cash cycle can be calculated as follows:

Cash cycle = Inventory conversion period + Trade receivables period - Trade payables period

The inventory turnover rate can be used to calculate the inventory conversion period:

Inventory turnover rate = Cost of goods sold / Average inventory

Rearranging, we get:

Average inventory = Cost of goods sold / Inventory turnover rate

Substituting the given values:

Inventory turnover rate = 15 
Cost of goods sold = ? 
Average inventory = ?

We don't have enough information to calculate cost of goods sold, but we can use the given information to find the length of the cash cycle in days:

Inventory conversion period = 365 / Inventory turnover rate = 365 / 15 = 24.33 days

Trade payables period = 54 days

Trade receivables period = 37 days

Cash cycle = Inventory conversion period + Trade receivables period - Trade payables period 
= 24.33 + 37 - 54 
= 7.33 days

Therefore, the answer is E) 7.33 days.

Wislon Has an Inventory Turnover Rate of 15, a Trade