A firm's inventory conversion period is 40 days and its receivables collection period is 25 days. What is its operating cycle?
Correct answer: C. 65 days
- A. 15 days
- B. 40 days
- C. 65 days
- D. 75 days
Explanation
The operating cycle is the inventory conversion period plus the receivables collection period. It is therefore 40 plus 25, or 65 days; the payables period is not deducted in this calculation.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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