A is corrent. The cash conversion cycle is the length of time between paying for purchases and receiving cash from the sale of finished goods. It is calculated as follows: Cash conversion cycle = Inventory conversion period + Receivables collection period – Payables deferral period = 58 days + 32 days – 15 days = 75 days.
B is incorrect. This calculation omits the subtraction of the payables deferral period: Cash conversion cycle = Inventory conversion period + Receivables collection period = 58 days + 32 days = 90 days.
C is incorrect. This solution subtracts, rather than adds, the receivables collection period and also adds, rather than subtracts, the payables deferral period: Cash conversion cycle = Inventory conversion period – Receivables collection period + Payables deferral period = 58 days – 32 days + 15 days = 41 days.
D is incorrect. This solution subtracts, rather than adds, the receivables collection period:
Cash conversion cycle = Inventory conversion period – Receivables collection period – Payables deferral period = 58 days – 32 days – 15 days = 11 days.
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