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CMA Intermediate · Financial Management and Business Data Analytics · Introduction to Working Capital Management

Sundaram Textiles Ltd. holds raw material for 30 days, takes 20 days to convert it into finished goods, keeps finished goods for 25 days and collects from debtors in 35 days. It gets 40 days of credit from suppliers. What is its cash conversion cycle?

The cash conversion cycle is 70 days. The operating cycle is 110 days, the sum of the raw material, conversion, finished goods and debtors periods. Deducting the 40 days of supplier credit gives the period for which cash is actually tied up.

  1. A70 daysCorrect
  2. B110 days
  3. C150 days
  4. D80 days

Explanation

Operating cycle = 30 + 20 + 25 + 35 = 110 days. Cash conversion cycle = operating cycle - payables period = 110 - 40 = 70 days. The 150-day option wrongly adds the creditors period instead of deducting it.

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