Question

Negus enterprises has an inventory conversion period of 69 days, an average collection period of 46 days, and a payables deferral period of 20 days. assume that cost of goods sold is 80% of sales. assume a 365-day year. do not round intermediate calculations. what is the length of the firm's cash conversion cycle? round your answer to the nearest whole number.

Answer 1

The cash conversion cycle for Negus Enterprises is calculated by adding the inventory conversion period (69 days) and the average collection period (46 days), then subtracting the payables deferral period (20 days), which results in a 95-day cash conversion cycle.

Step-by-step explanation:

The cash conversion cycle of a firm represents the period of time from when a company buys inventory, through its sale, and until the collection of accounts receivable from the sale. To calculate the cash conversion cycle (CCC), we use the formula:

CCC = Inventory Conversion Period + Receivables Collection Period - Payables Deferral Period

From the question, we have the following data:

• Inventory Conversion Period = 69 days
• Average Collection Period = 46 days
• Payables Deferral Period = 20 days

Substitute the given values into the formula:

CCC = 69 days + 46 days - 20 days = 95 days

So the length of Negus Enterprises's cash conversion cycle is 95 days after rounding to the nearest whole number.