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CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management

Kaveri Ltd has an average raw material holding period of 30 days, work-in-progress period of 10 days, finished goods holding period of 20 days, and debtors collection period of 40 days. It gets 45 days of credit from suppliers. Its operating cycle and cash cycle (in days) are respectively:

The operating cycle is the sum of raw material, work-in-progress, finished goods and debtors periods: 30+10+20+40 = 100 days. The cash cycle deducts the 45 days of supplier credit, giving 55 days. Adding the credit period instead would wrongly give 145 days.

  1. A100 and 55Correct
  2. B100 and 145
  3. C55 and 100
  4. D90 and 45

Explanation

Operating cycle = 30 + 10 + 20 + 40 = 100 days. Cash cycle = operating cycle - creditors period = 100 - 45 = 55 days. Adding the creditors period (145) is the sign error.

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