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NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis

A company's cost of goods sold is Rs 1,200 crore. Opening inventory is Rs 150 crore and closing inventory is Rs 250 crore. Annual credit purchases are not given. Credit sales are Rs 1,800 crore, and average receivables are Rs 300 crore. Using a 365-day year, what is the approximate cash-conversion cycle if average payables are Rs 200 crore based on COGS?

The cash-conversion cycle is about 61 days. Inventory days, receivable days and payable days each work out to about 60.8 days, so adding the first two and deducting payable days leaves roughly 61 days.

  1. AApprox. 61 daysCorrect
  2. BApprox. 67 days
  3. CApprox. 122 days
  4. DApprox. 12 days

Explanation

Average inventory = 200; inventory days = 200/1200 x 365 = 60.8. Receivable days = 300/1800 x 365 = 60.8. Payable days = 200/1200 x 365 = 60.8. CCC = 60.8 + 60.8 - 60.8 = about 61 days. Ignoring payables gives about 122 days.

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