The difference between the number of days resources are tied up in the operating cycle and the number of days the firm can use spontaneous financing before payment is made is the
A) average payment period.
B) average age of inventory.
C) average collection period.
D) cash conversion cycle.

Question

Quizplus · Accepted Answer

The cash conversion cycle (CCC) measures the length of time that a company's cash is tied up in inventory and accounts receivable before it is converted into cash from sales. It is calculated as the difference between the number of days in the operating cycle (average age of inventory plus average collection period) and the number of days the firm can use spontaneous financing (average payment period). Thus, the difference between these two is the CCC.

The Difference Between the Number of Days Resources Are Tied