Working capital cycle: If inventory days are 60, receivable days are 45, and payable days are 30, what is the cycle in days?

Working capital cycle: If inventory days are 60, receivable days are 45, and payable days are 30, what is the cycle in days?

• A. 75 days
• B. 60 days
• C. 105 days
• D. 45 days

Answer: (A)

The working capital cycle measures how long cash is tied up in normal operations by adding the time stock sits before sale and the time customers take to pay, then subtracting the time you can delay paying suppliers. Here, inventory stays 60 days and receivables take 45 days to collect, while you can defer payments for 30 days. So the cycle is 60 + 45 − 30 = 75 days. This reflects cash being tied up for about 75 days in the operating cycle, with supplier credit effectively financing part of it. If you forgot to subtract payables you’d get 105 days, and focusing on only one component wouldn’t capture the financing effect of payable days.

The working capital cycle measures how long cash is tied up in normal operations by adding the time stock sits before sale and the time customers take to pay, then subtracting the time you can delay paying suppliers. Here, inventory stays 60 days and receivables take 45 days to collect, while you can defer payments for 30 days. So the cycle is 60 + 45 − 30 = 75 days. This reflects cash being tied up for about 75 days in the operating cycle, with supplier credit effectively financing part of it. If you forgot to subtract payables you’d get 105 days, and focusing on only one component wouldn’t capture the financing effect of payable days.