Kurt's Enterprises has a receivables turnover rate of 11.8, a payables turnover rate of 12.4, and an inventory turnover rate of 15.6. What is the length of the firm's operating cycle?

Question

Quizplus · Accepted Answer

The operating cycle can be calculated by adding the days inventory is held to the days sales are outstanding, then subtracting the number of days it takes to pay suppliers.

Days inventory held = 365/inventory turnover = 365/15.6 = 23.4 days
Days sales outstanding = 365/receivables turnover = 365/11.8 = 30.92 days
Days payable outstanding = 365/payables turnover = 365/12.4 = 29.44 days

Therefore, operating cycle = 23.4 + 30.92 - 29.44 = 24.88 days, which rounds up to 54.33 days (C)

Kurt's Enterprises Has a Receivables Turnover Rate of 11