Question

The cash conversion cycle is computed as:
Select one:
A. Days sales outstanding + Days inventory outstanding – Days payable outstanding
B. Days sales outstanding – Days payable outstanding
C. Days sales outstanding – Days inventory outstanding
D. Days sales outstanding – Days inventory outstanding + Days payable outstanding
E. None of the above

Answer 1

Answer:

The correct option here is A) Days sales outstanding + Days inventory outstanding - Days payable outstanding.

Explanation:

Cash conversion cycle which is also termed as Net operating cycle or Cash cycle, this cycle tells us about how much time it is going to take for an organization to converts the amount of investment it has made in the inventory and various other resources to cash , which will be generated by sales.

Formula used for calculation =

                             AMOUNT OF SALES OUTSTANDING IN DAYS

                                                  +

                             AMOUNT OF INVENTORY OUTSTANDING IN DAYS

                                                  +

                             AMOUNT OF PAYABLE OUTSTANDING IN DAYS