A company has a collection period of 37.5 days,an inventory period of 93.4 days,and a payables turnover of 48.12.Calculate the cash conversion cycle.

Question

Quizplus · Accepted Answer

Step 1 - Compute the Operating Period.
Operating period = Inventory period + Collection period
Operating period = 93.4 + 37.5 = 130.90
Step 2 - Compute the Accounts Payable Period.
Accounts Payable Period = 11ea7fdb_fc3d_90f7_a768_135d86cb7d19_TB2902_11 Accounts Payable Period = 11ea7fdb_fc3d_b808_a768_5d2a0df5c54a_TB2902_11 = 7.59
Step 3 - Use the Operating Period and Account Payable Period to compute the Cash Conversion Cycle.
Cash conversion cycle = Operating period - Accounts payable period
Cash conversion cycle = 130.90 - 7.59 = 123.31

A Company Has a Collection Period of 37