ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Epsilon Co's inventory days are 50, receivables days are 40 and payables days are 30. Which of the following is the length of its working capital (cash operating) cycle?
The working capital cycle is 60 days. It is calculated as inventory days of 50 plus receivables days of 40, less payables days of 30, because supplier credit offsets the time cash is tied up in inventory and receivables.
- A60 daysCorrect
- B120 days
- C20 days
- D100 days
Explanation
Cash operating cycle = inventory days + receivables days - payables days = 50 + 40 - 30 = 60 days. Adding payables gives 120 days, which is a sign error.
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