Question

Cass & Company has the following data. What is the firm's cash conversion cycle?

Inventory Conversion Period = 47 days
Receivables Collection Period = 17 days
Payables Deferral Period = 25 days
A. 46 days
B. 30 days
C. 45 days
D. 39 days
E. 38 days

Answer 1

The firm's cash conversion cycle is calculated by adding the Inventory Conversion Period and Receivables Collection Period, then subtracting the Payables Deferral Period. Given the data, the cash conversion cycle for Cass & Company is 39 days.

Step-by-step explanation:

The cash conversion cycle (CCC) measures the number of days a firm's capital is tied up in the production and sales process before it is turned into cash through sales to customers, taking into account the time the company takes to sell its inventory, collect receivables, and pay its invoices. The formula to calculate the CCC is:

Inventory Conversion Period + Receivables Collection Period - Payables Deferral Period

Using the data provided:

Inventory Conversion Period = 47 days

Receivables Collection Period = 17 days

Payables Deferral Period = 25 days

Plugging these values into the formula, we have:

47 days (Inventory Conversion Period)

+

17 days (Receivables Collection Period)

-

25 days (Payables Deferral Period)

=

39 days

Therefore, the firm's cash conversion cycle is 39 days.

Answer 2

D. 39 days

Step-by-step explanation:

The computation of cash conversion cycle is shown below

As we know that

The cash conversion cycle = Days inventory outstanding + days sale outstanding - days payable outstanding

= 47 days + 17 days - 25 days

= 39 days

We simply applied the above equation so that the cash conversion cycle could be determined