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CMA Intermediate · Financial Management and Business Data Analytics · Management of Cash and Cash Equivalents

Mehta Auto Components Ltd has annual credit sales of Rs 36,50,000 and cost of goods sold of Rs 29,20,000. Average receivables are Rs 4,00,000, average inventory is Rs 3,20,000 and average payables are Rs 2,40,000. Taking 365 days, what is its cash cycle, with receivables on sales and inventory and payables on cost of goods sold?

The cash cycle is 50 days. Receivables take 40 days on sales, inventory 40 days on cost of goods sold, and payables 30 days on cost of goods sold. Adding the first two and subtracting payables gives 40 + 40 - 30 = 50 days.

  1. A40 daysCorrect
  2. B30 days
  3. C50 days
  4. D70 days

Explanation

Receivable days = 4,00,000/36,50,000 x 365 = 40 days. Inventory days = 3,20,000/29,20,000 x 365 = 40 days. Payable days = 2,40,000/29,20,000 x 365 = 30 days. Cash cycle = 40 + 40 - 30 = 50 days. Re-checking: 3,20,000/80,000 per day = 40 and 2,40,000/80,000 = 30, so the correct cycle is 50 days.

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