ACCA Applied Skills · Financial Management · The nature, elements and importance of working capital
Zeta Co has inventory holding period of 60 days, receivables collection period of 45 days and payables payment period of 50 days. Using a 365-day year, what is its working capital cycle (cash operating cycle)?
The working capital cycle is 55 days. It is calculated by adding inventory days of 60 and receivables days of 45, then deducting payables days of 50, because supplier credit finances part of the period between paying for goods and collecting cash.
- A55 daysCorrect
- B155 days
- C65 days
- D-35 days
Explanation
Cycle = inventory days + receivables days - payables days = 60 + 45 - 50 = 55 days. Option B adds payables instead of deducting them (60+45+50=155). Option C is 60+50-45 = 65, which wrongly treats receivables as a deduction.
Did you get it right without looking?
One question tells you little. A timed set on The nature, elements and importance of working capital shows your real accuracy, how long you take and where you lose marks.
More The nature, elements and importance of working capital questions
- Which statement best describes the central trade-off in working capital management?
- Brent Co has annual credit sales of $7,300,000 and cost of sales of $5,110,000. Year-end trade receivables are $1,000,000 and trade payables…
- A company has current assets of $600,000 (inventory $300,000) and current liabilities of $400,000. Management uses $100,000 of cash to repay…
- Which of the following is the most likely symptom of overtrading in a company that has expanded sales rapidly without raising additional lon…
- Which of the following is a typical consequence of overtrading?
- Which of the following is the most appropriate action to remedy overtrading in a profitable, fast-growing company?