Question

based on the following information, which of the following is closest to the cash conversion cycle?

• revenues = $6,000
• cgs = $4,000
• accounts receivable = $800
• inventory = $500
• accounts payable = $300

○ 45.62 days
○ 48.66 days
○ 66.91 days
○ 94.28 days

Explanation:

Step1: Calculate Days Sales Outstanding (DSO)

DSO formula: $DSO = \frac{Accounts\ Receivable}{Revenues} \times 365$
Substitute values: $\frac{800}{6000} \times 365 \approx 48.67$ days

Step2: Calculate Days Inventory Outstanding (DIO)

DIO formula: $DIO = \frac{Inventory}{CGS} \times 365$
Substitute values: $\frac{500}{4000} \times 365 = 45.625$ days

Step3: Calculate Days Payable Outstanding (DPO)

DPO formula: $DPO = \frac{Accounts\ Payable}{CGS} \times 365$
Substitute values: $\frac{300}{4000} \times 365 = 27.375$ days

Step4: Calculate Cash Conversion Cycle (CCC)

CCC formula: $CCC = DSO + DIO - DPO$
Substitute values: $48.67 + 45.625 - 27.375 \approx 66.92$ days (close to 66.91 days)

Answer:

66.91 days