Question

Wolfgang’s Masonry management estimates that it takes the company 30 days on average to pay its suppliers. Management also knows that the company has days’ sales in inventory of 67 days and days’ sales outstanding of 30 days. How does Wolfgang’s cash conversion cycle compare with the industry average of 74 days?

Answer 1

Answer:

The  Wolfgang’s cash conversion cycle is better than the industry average.

Explanation:

For comparison, first we have to compute the cash conversion cycle which is shown below:

= Days' sales in inventory + days' sales outstanding - days on average to pay its suppliers

= 67 days + 30 days - 30 days

= 67 days

By comparing Wolfgang's cash conversion cycle with the industry average we get to know that Wolfgang's cash conversion is good than industry one because ,in Wolfgang's, the cash conversion cycle is 67 days which is less than the industry average i.e 74 days.