What is the formula for the working capital cycle (in days)?

What is the formula for the working capital cycle (in days)?

• A. Receivable days + Inventory days + Payable days.
• B. Inventory days - Receivable days + Payable days.
• C. Payable days - Receivable days - Inventory days.
• D. Receivable days + Inventory days - Payable days.

Answer: (D)

Net operating cycle, commonly called the cash conversion cycle, shows how long cash is tied up in the business’s operations. The idea is to add the time it takes to collect money from customers (receivable days) to the time inventory sits before it’s sold (inventory days), then subtract the time the business can delay paying suppliers (payable days). In formula form, CCC = receivable days + inventory days − payable days. This reflects how many days of operating cash the company needs. If CCC is positive, cash is tied up for that many days; if negative, the firm is effectively financed by suppliers for that period. For example, with 40 days of receivable, 60 days of inventory, and 30 days of payables, CCC would be 70 days.

Net operating cycle, commonly called the cash conversion cycle, shows how long cash is tied up in the business’s operations. The idea is to add the time it takes to collect money from customers (receivable days) to the time inventory sits before it’s sold (inventory days), then subtract the time the business can delay paying suppliers (payable days). In formula form, CCC = receivable days + inventory days − payable days. This reflects how many days of operating cash the company needs. If CCC is positive, cash is tied up for that many days; if negative, the firm is effectively financed by suppliers for that period. For example, with 40 days of receivable, 60 days of inventory, and 30 days of payables, CCC would be 70 days.