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ACCA Strategic Professional · Strategic Business Leader · Financial analysis and decision-making techniques

Brightwell Ltd's year-end figures are: revenue $90m, cost of sales $54m, closing inventory $13.5m, trade receivables $15m, trade payables $9m. Using year-end balances and a 365-day year, what is its cash operating cycle (inventory days plus receivable days minus payable days, to the nearest day)?

The cash operating cycle is about 91 days. Inventory days are 13.5/54 x 365 = 91.25, receivable days 15/90 x 365 = 60.8, and payable days on cost of sales 9/54 x 365 = 60.8, which cancel the receivables, leaving roughly 91 days.

  1. A91 daysCorrect
  2. B61 days
  3. C76 days
  4. D137 days

Explanation

Inventory days = 13.5/54 x 365 = 91.25. Receivable days = 15/90 x 365 = 60.83. Payable days = 9/54 x 365 = 60.83 (payables on cost of sales). Cycle = 91.25 + 60.83 - 60.83 = 91.25, about 91 days. Using revenue for payables gives 36.5 days and a cycle of 115, and omitting payables gives 152; 61 is receivable days alone.

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