Answer:
Cash conversion period = 255.46 days
Step-by-step explanation:
The sale-to-cash conversion period is the average length of time between when payment is made to suppliers for goods purchased and when cash are received form customers in respect of sales. The shorter the better because the period indcates how much working finance a business would need .
It is calculated as follows
Cash conversion period = Inventory days + receivable days - Payable days
Inventory days
=(Average inventory/cost of goods)× 365
=(120,000/182,500) × 365
=240 days
Receivable days
=Average receivable/Credit sales× 365
=(85,000/325,000)× 365 days
= 95.46 days
Payable days
= Average payable days/cost of goods × 365days
= 40000/182,500 × 365 days
= 80 days
Sales to cash conversion period
= 240 + 95.46 - 80
= 255.46 days