CS Executive · Corporate Accounting and Financial Management · Working Capital Management
Aarav Traders has raw material holding period of 30 days, work-in-progress period of 10 days, finished goods holding period of 20 days, and receivables collection period of 40 days. It gets 25 days of credit from suppliers. What is its cash conversion cycle?
The cash conversion cycle is 75 days. The operating cycle is 100 days (30+10+20+40), and the 25 days of supplier credit is deducted because payment to creditors is deferred for that period.
- A75 daysCorrect
- B100 days
- C125 days
- D65 days
Explanation
Operating cycle = 30 + 10 + 20 + 40 = 100 days. Cash cycle = 100 - 25 = 75 days. Using 100 days ignores the creditors' deferral period, and 125 wrongly adds it.
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