Find out the cash conversion period if receivable conversion period is 40 days, deferral period is 30 days and inventory holding period in 25 days
Answers
Answer:95 days
Explanation:
Add all
Concept:
Cash Conversion period- The period (expressed in days) it takes for a business to convert its investments in inventory and other resources into cash flows from sales is known as the cash conversion cycle (CCC). The CCC, also known as the Net Operating Cycle or just the Cash Cycle, aims to quantify the length of time that each net input dollar spends in the production and sales cycle before it is turned into received cash.
This metric accounts for the amount of time required by the business to sell its inventory, the length of time needed to collect receivables, and the amount of time required to pay its debts.
The formula for CCP is,
CCP= Inventory holding period + receivable conversion period - Payable conversion period
Given:
- Inventory holding period - 25 days
- Receivable conversion period - 40 days
- Payable conversion period - 30 days
Find : cash conversion period
Solution:
CCP = 25 + 40 - 30
CCP = 35 days.
Hence, the cash conversion period is 35 days.
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