What is the cash conversion cycle for a firm with $3 million average inventories, $1.5 million average accounts payable, a receivables period of 45 days, and an annual cost of goods sold of $18 million?

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Quizplus · Accepted Answer

Cash conversion cycle (CCC) = inventory period + receivables period - payables period

Average inventory = $3,000,000
Annual cost of goods sold = $18,000,000
Inventory period = (Average inventory / Annual COGS) x 365 days
Inventory period = (3,000,000 / 18,000,000) x 365 = 60.83 days

Receivables period = 45 days

Average accounts payable = $1,500,000
Payables period = (Average accounts payable / Annual COGS) x 365 days
Payables period = (1,500,000 / 18,000,000) x 365 = 30.42 days

CCC = inventory period + receivables period - payables period
CCC = 60.83 + 45 - 30.42 = 75.41 days

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