US CMA Part 2 · Chapter 1 · Question 9 of 15
Garrick Instruments has days inventory outstanding of 52 days, days sales outstanding of 30 days and days payables outstanding of 38 days. What is its cash conversion cycle?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 44 days
Explanation
The operating cycle = days inventory outstanding + days sales outstanding = 52 + 30 = 82 days. The cash conversion cycle deducts the period for which suppliers finance the business: 82 - 38 = 44 days. 82 days is the operating cycle, not the cash conversion cycle, and adding payables days reverses the effect of trade credit.
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