Question
How is the operating cycle related to the cash conversion cycle?
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Answer
Operating cycle is DOH+DSO before subtracting payables.
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Question
If DOH=40, DSO=25, and DPO=50, what does the firm's cash conversion cycle equal?
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Answer
15 days.
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Question
If two similar firms have cash conversion cycles of 18 days and 52 days, which firm is managing working capital more efficiently?
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Answer
Usually the firm with the 18-day CCC.
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Question
How is a firm's cash conversion cycle computed?
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Answer
CCC=DOH+DSO−DPO.
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