Final answer:
Cash-to-cash cycle time refers to the time it takes for a company to convert its investments in raw materials, production, and inventory into cash received from selling the finished products.
It is calculated by considering the different elements of the cycle, including the inventory conversion period, sales conversion period, accounts receivable period, and accounts payable period.
Step-by-step explanation:
Cash-to-cash cycle time refers to the amount of time it takes for a company to convert its investments in raw materials, production, and inventory into cash received from selling the finished products. It is a measure of a company's efficiency in managing its working capital. The cash-to-cash cycle time equation includes several elements:
- Inventory Conversion Period: The time it takes for raw materials to be converted into finished goods.
- Sales Conversion Period: The time it takes for finished goods to be sold and the revenue to be collected.
- Accounts Receivable Period: The time it takes for the company to collect payments from its customers.
- Accounts Payable Period: The time it takes for the company to pay its suppliers.
The formula for cash-to-cash cycle time is: Cash-to-Cash Cycle Time = Inventory Conversion Period + Sales Conversion Period + Accounts Receivable Period - Accounts Payable Period.