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Question:

A company has a cash conversion cycle of 80 days. If the company’s average receivables turnover increases from 11 to 12, the company’s cash conversion cycle:

A decreases by approximately 3 days.
Explaination

Cash conversion cycle (CCC) = days of sales outstanding + days of inventory on hand —number of days of payables. Days of sales outstanding = 365 / receivables turnover = 365 / 11 = 33.18; 365 / 12 = 30.42. This means the CCC decreases by 2.76 days.