Question

1) define Conversion Cycle, 2) solve the question below. Include how you solved the problem in...

1) define Conversion Cycle,

2) solve the question below. Include how you solved the problem in words, and then your detailed formula.

The University has the following data. What is the University’s cash conversion cycle?

Inventory conversion period = 50 days

Receivables collection period = 17 days

Payables deferral period = 25 days

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Homework Answers

Answer #1

(1) Coversion cycle: Coversion cycle or cash conversion cycle means the time taken by a company to convert its raw material or inventory purchases into sales and then collecting the receivables after all payables have been paid.

(2) Formula for cash conversion cycle is:

Cash conversion cycle = Inventory conversion period + Receivables collection period - Payables deferral period

Putting the given values in the above formula, we get,

Cash conversion cycle = 50 + 17 - 25 = 42 days

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