Acca financial Accounting (FA) Study Text ac ca (FA)

Interpretation of financial statements 

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KAPLAN PUBLISHING

 

The cash conversion cycle ('CCC') can be used to determine how many days 

cash is tied up on the working capital cycle as follows: 

CCC = inventory holding period + receivables collection period – creditors 

payment period. 

Ideally, businesses would like to have cash tied up in working capital for the 

minimum number of days possible. In the case of cash retail business, such as 

a supermarket, the cash conversion cycle will be very short. In the case of a 

manufacturing business which also sells on credit, the cash conversion cycle 

will be considerably longer and therefore increase the working capital 

requirements of the business. 

By way of illustration, suppose that two businesses provide you with the 

following information relating to working capital management: