Cass & Company has the following data.What is the firm's cash conversion cycle?

Question

Cass & Company has the following data.What is the firm's cash conversion cycle? ​

Quizplus · Accepted Answer

Cash conversion cycle = Days inventory outstanding + Days sales outstanding - Days payable outstanding

Days inventory outstanding = (Average inventory/Cost of goods sold) x 365 
= (12,000/240,000) x 365 = 18.25 days

Days sales outstanding = (Accounts receivable/Average daily sales) x 365 
= (16,000/480,000) x 365 = 12.17 days

Days payable outstanding = (Accounts payable/Cost of goods sold) x 365 
= (10,000/240,000) x 365 = 15.21 days

Thus, Cash conversion cycle = 18.25 + 12.17 - 15.21 = 15.21 days

Therefore, the firm's cash conversion cycle is 32 days (Option D).

Cass & Company Has the Following Data