Multiple Choice QuestionThe cash conversion cycle formula isMultiple choice question.days' sales in accounts receivable plus days' sales in inventory plus days' sales in accounts payabledays' sales in accounts receivable minus days' sales in inventory plus days' sales in accounts payabledays' sales in accounts receivable plus days' sales in inventory minus days' sales in accounts payabledays' sales in accounts receivable minus days' sales in inventory minus days' sales in accounts payable
Question
Multiple Choice QuestionThe cash conversion cycle formula isMultiple choice question.days' sales in accounts receivable plus days' sales in inventory plus days' sales in accounts payabledays' sales in accounts receivable minus days' sales in inventory plus days' sales in accounts payabledays' sales in accounts receivable plus days' sales in inventory minus days' sales in accounts payabledays' sales in accounts receivable minus days' sales in inventory minus days' sales in accounts payable
Solution
The correct answer is: days' sales in accounts receivable plus days' sales in inventory minus days' sales in accounts payable.
This is because the cash conversion cycle (CCC) is a metric that expresses the time (in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales. The formula for the CCC is:
CCC = DIO + DSO - DPO
Where: DIO = Days Inventory Outstanding (days' sales in inventory) DSO = Days Sales Outstanding (days' sales in accounts receivable) DPO = Days Payable Outstanding (days' sales in accounts payable)
So, the CCC is calculated by adding the number of days it takes to sell inventory (DIO) and the number of days it takes to collect receivables (DSO), then subtracting the number of days the company has to pay its bills (DPO).
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