Calculate the operating cash cycle in days if all sales are for cash, inventory is turned over 8 times a year and creditors are paid on average 5 times a year.

Question

Quizplus · Accepted Answer

The operating cash cycle is calculated as the inventory period minus the accounts payable period. Inventory turnover of 8 times a year implies an inventory period of 365/8 = 45.625 days. Creditors being paid 5 times a year implies an accounts payable period of 365/5 = 73 days. Since all sales are for cash, the receivables period is 0. Therefore, the operating cash cycle is 45.625 - 73 = -27.375 days, which rounds to -27.4 days.

Calculate the Operating Cash Cycle in Days If All Sales