A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.

Question

Quizplus · Accepted Answer

The two ratios, days' sales uncollected and days' sales in inventory, measure different aspects of a company's cash conversion cycle. Days' sales uncollected measures how long it takes for the company to collect its accounts receivable, while days' sales in inventory measures how long it takes for the company to sell its inventory. There is no direct relationship between these two ratios that would allow us to calculate how long it takes for inventory to be converted to cash. Therefore, the statement is false.

A Company That Has Days' Sales Uncollected of 30 Days