Question

Gallardo Company had the following information for the past three years:

			2019		2018		2017
	Days Inventory Outstanding		31		32		33
	Days Sales Outstanding		6		8		9
	Days Payables Outstanding		21		16		15

Gallardo’s Cash Conversion Cycle

a) Improved from year 2017 to year 2018 but declined from year 2018 to year 2019.

b) Declined each year from 2017 through 2019.

c) Declined from year 2017 to year 2018 but improved from 2018 to year 2019.

d) Improved each year from 2017 through 2019.

e) There is not enough information to assess the Cash Conversion Cycle.

Answer 1

Ans.	Option d   Improved each year from 2017 through 2019.
	*Calculation of Cash conversion cycle:
		2019	2018	2017
	Days inventory outstanding	31	32	33
	Add: Days sales outstanding	6	8	9
	Less: Days payable outstanding	-21	-16	-15
	Cash Conversion Cycle	16	24	27
	*Decrease in cash conversion cycle shows that there is an improvement in collection capacity (days
	taken in collect the cash or convert the current assets into cash).
	*The cash conversion cycle is decreasing in each year it means that this is improving from 2017
	through 2019.