Question

a company with a 120-day operating cycle determines its cash conversion cycle using the following data:

• receivable days: 25
• inventory days: 95
• payable days: 35

what is the companys cash conversion cycle?
○ 85
○ 165
○ 105
○ 25

Explanation:

Step1: Recall Cash Conversion Cycle Formula

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

Step2: Identify Given Values

We know:

• Inventory days (\( \text{ID} \)) = 95
• Receivable days (\( \text{RD} \)) = 25
• Payable days (\( \text{PD} \)) = 35

Step3: Calculate Using the Formula

Using \( \text{CCC} = \text{ID} + \text{RD} - \text{PD} \):
Substitute the values: \( \text{CCC} = 95 + 25 - 35 \)
First, add 95 and 25: \( 95 + 25 = 120 \)
Then subtract 35: \( 120 - 35 = 85 \)

Answer:

85