Cash conversion cycle: Wolfgang Electricals estimates that it takes the company 31 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 54 days and days sales' outstanding of 34 days. What is its cash conversion cycle?
A) 119 days
B) 34 days
C) 57 days
D) 46 days

Question

Quizplus · Accepted Answer

Cash conversion cycle is calculated by adding days of inventory on hand and days sales outstanding and then subtracting the number of days it takes to pay suppliers. 
Cash Conversion Cycle = Days Inventory on Hand + Days Sales Outstanding - Days Payable Outstanding. 
In this case, 
Days Inventory on Hand = 54 days 
Days Sales Outstanding = 34 days 
Days Payable Outstanding = 31 days 
Therefore, 
Cash Conversion Cycle = 54 days + 34 days - 31 days = 57 days.

Cash Conversion Cycle: Wolfgang Electricals Estimates That It Takes the Company