Question

Marriott Intl A estimates that the company takes 35 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 61 days and days sales' outstanding of 71 days. What is its cash conversion cycle?

Group of answer choices

109 days

97 days

116 days

none of the answers is correct.

121 days

Answer 1

The correct answer is 97 days

Cash conversion cycle can be defined as the time taken by the company to convert the inventories into sales.

Cash conversion cycle = Days sales outstanding + Days inventory outstanding - Days payables outstanding

• Days payables outstanding = Time taken by a company or firm to make payments to its creditors or suppliers.
• Days sales outstanding = Time taken by a company or firm to collect the money from the customers to whom goods were sold on credit.
• Days inventory outstanding = Time taken by a company or firm to convert its inventories into sales.

Days sales outstanding = 71

Days inventory outstanding = 61

Days payables outstanding = 35

Cash conversion cycle = (71 + 61 - 35) days

= 97 days