ICAEW BIP · Chapter 7 · Question 9 of 10
A company's working capital data are: Inventory holding period 45 days Trade receivables collection period 38 days Trade payables payment period 30 days What is the company's cash operating cycle?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 53 days
Explanation
Cash operating cycle = inventory holding period + receivables collection period - payables payment period = 45 + 38 - 30 = 53 days. Credit from suppliers shortens the period for which the business must finance its working capital, so the payables period is deducted, not added (adding it gives 113 days). A longer cycle means more cash is tied up in working capital.
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