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there is question, whether to calculate cash conversion cylcle of service company. specially how to calculate...

there is question, whether to calculate cash conversion cylcle of service company. specially how to calculate inventory days
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Answer #1

Service companies have no inventories or very little inventories.

If they have no inventories, there is no need to calculate inventory days.

If they have inventories, the inventory days are not relevant for calculating cash conversion cycle, as receivables are created when the service is rendered. The materials are used incidentally and there is no material prodution.

However, for control purposes, the inventory holdings can be evaluated on the basis of inventory days related to average consumption.

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