Answer :
The firm's cash cycle can be calculated by adding the inventory and accounts receivable periods and subtracting the accounts payable period. The firm's cash cycle is 63.8 days.
Calculating the Cash Cycle
The cash cycle, also known as the cash conversion cycle, is a metric that shows how long a firm takes to convert its investments in inventory and other resources into cash flows from sales. You can calculate it using the following formula:
Cash Cycle = Inventory Period + Accounts Receivable Period - Accounts Payable Period
Using the data provided:
- Inventory Period: 59.6 days
- Accounts Receivable Period: 42.3 days
- Accounts Payable Period: 39.1 days
So, we calculate the cash cycle as follows:
- 59.6 days + 42.3 days - 39.1 days
- = 102.9 days - 39.1 days
- = 63.8 days
Thus, the firm's cash cycle is 63.8 days.
The complete question is- A firm has an inventory period of 59.6 days, an accounts receivable period of 42.3 days, and an accounts payable period of 39.1 days. What is the firm's cash cycle?
