CFA Level I · CFA Level I Exam · Analysis of Inventories
A company reports annual cost of goods sold of 730,000 and average inventory of 100,000. Average accounts receivable is 150,000 on credit sales of 1,095,000. Average accounts payable is 80,000. Using 365 days, the cash conversion cycle is closest to:
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- A30 daysCorrect
- B50 days
- C70 days
Explanation
Days of inventory = 100,000/730,000 x 365 = 50. Days of receivables = 150,000/1,095,000 x 365 = 50. Days of payables = 80,000/730,000 x 365 = 40. Cycle = 50 + 50 - 40 = 60... check: 80/730 x 365 = 40, so 60. Closest option given is not listed, so recompute with payables 80,000 over purchases; using COGS the result is 60.
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