What is the length of the firm's cash conversion cycle? Negus Enterprises has an inventory...

Question:

What is the length of the firm's cash conversion cycle?

Negus Enterprises has an inventory conversion period of 71 days, an average collection period of 39 days, and a payables deferral period of 20 days. Assume that cost of goods sold is 80% of sales. Assume 365 days in a year for your calculations.

Cash Cycle:

The cash conversion cycle represents the total time that a company requires to sell its inventory, convert its receivables, and pay its suppliers. It is equal to the difference between the operating cycle and the payables deferral period.

Answer and Explanation: 1

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Negus Enterprises' length of the cash conversion cycle is 90 days.

Explanation:

  • Cash conversion cycle = Average collection period + Inventory...

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Operating Cycle & Cash Cycle: Definition & Calculations

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Chapter 17 / Lesson 2
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The operating cycle and cash conversion cycle are both tools to evaluate the timeline of when a business will become profitable. Explore the calculations of each, and identify their importance to a business.


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