Question

a company has a 90-day operating cycle, with 20 payable days, 35 receivable days and 55 inventory days. what is their cash conversion cycle? 40 70 110 55

Explanation:

Step1: Recall Cash Conversion Cycle Formula

The formula for the cash conversion cycle (CCC) is: \( CCC = \text{Inventory Days} + \text{Receivable Days} - \text{Payable Days} \) or alternatively, since Operating Cycle (OC) = Inventory Days + Receivable Days, we can also use \( CCC = OC - \text{Payable Days} \).

Step2: Identify Given Values

We know the operating cycle (OC) is 90 days, and payable days are 20 days.

Step3: Apply the Formula

Using \( CCC = OC - \text{Payable Days} \), substitute the values: \( CCC = 90 - 20 = 70 \). Alternatively, using the other components: Inventory Days = 55, Receivable Days = 35, so \( 55 + 35 - 20 = 70 \).

Answer:

70 (corresponding to the option with 70)