Nishat Textiles has the following data for the current year:Current ratio = 2:1; Average age of inventory = 60 days; Average collection period = 30 days; Average payable period = 40 days.Calculate the Cash Conversion Cycle (CCC).

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SSC Financial and Cost Accounting P-1 QUESTION #6048

Question 1

Nishat Textiles has the following data for the current year:
Current ratio $= 2:1$; Average age of inventory $= 60$ days; Average collection period $= 30$ days; Average payable period $= 40$ days.
Calculate the Cash Conversion Cycle (CCC).

50 days✔️
90 days
78 days
42 days

Correct Answer Explanation

The Cash Conversion Cycle formula is:

$\text{CCC} = \text{Days Inventory Outstanding} + \text{Days Sales Outstanding} - \text{Days Payable Outstanding}$

$= 60 + 30 - 40 = \mathbf{50 \text{ days}}$

The CCC measures how long it takes a firm to convert its investments in inventory and other resources into cash flows from sales. A shorter CCC generally indicates better liquidity management.

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