ACCA Applied Knowledge · Financial Accounting · Ratios
Keswick plc has inventory days of 60, receivables days of 45 and payables days of 40. Management plans to cut inventory days to 50 and extend payables days to 55, with receivables days unchanged. What will the working capital cycle be after these changes?
The working capital cycle will be 40 days. It equals inventory days plus receivables days minus payables days, so 50 plus 45 minus 55 gives 40. The current cycle of 65 days therefore shortens by 25 days.
- A30 daysCorrect
- B40 days
- C50 days
- D20 days
Explanation
Cycle = inventory days + receivables days - payables days = 50 + 45 - 55 = 40 days. Check against the current cycle: 60 + 45 - 40 = 65 days. So the new cycle is 40 days, not 30.
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