A firm's operating cycle can be determined by:
A)Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.
B)Adding the average days in inventory to the average days in receivables.
C)Dividing cost-of-goods-sold by average inventory.
D)Dividing 365 days by the difference in the inventory turnover and the receivable turnover.

Question

Quizplus · Accepted Answer

The operating cycle represents the time it takes for a company to purchase inventory, sell it on credit, and collect cash from customers. Therefore, the operating cycle can be determined by adding the average days in inventory to the average days in receivables. This calculation provides a more accurate measure of the time it takes for a company to convert its inventory and accounts receivable into cash.

A Firm's Operating Cycle Can Be Determined By