The cash conversion cycle (CCC) is calculated as DIO + DSO - DPO. If DIO=40 days, DSO=35 days, DPO=25 days, CCC equals?

The cash conversion cycle (CCC) is calculated as DIO + DSO - DPO. If DIO=40 days, DSO=35 days, DPO=25 days, CCC equals?

• A. 60 days
• B. 50 days
• C. 45 days
• D. 55 days

Answer: (B)

The cash conversion cycle measures how long cash is tied up in the core operating activities by combining how long inventory sits before sale (DIO), how long customers take to pay (DSO), and how long the firm can defer paying suppliers (DPO). The cycle is calculated as DIO plus DSO minus DPO. Plugging in the values: 40 days + 35 days − 25 days = 50 days. So the CCC is 50 days, meaning it takes about 50 days from paying for inventory to collecting cash from customers, after accounting for the time the firm can delay payments to suppliers. The other numbers wouldn’t fit with the given values because they would require a different combination or sign for DPO.

The cash conversion cycle measures how long cash is tied up in the core operating activities by combining how long inventory sits before sale (DIO), how long customers take to pay (DSO), and how long the firm can defer paying suppliers (DPO). The cycle is calculated as DIO plus DSO minus DPO. Plugging in the values: 40 days + 35 days − 25 days = 50 days. So the CCC is 50 days, meaning it takes about 50 days from paying for inventory to collecting cash from customers, after accounting for the time the firm can delay payments to suppliers. The other numbers wouldn’t fit with the given values because they would require a different combination or sign for DPO.