- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 4. Working Capital and Liquidity
- Subject 1. Cash Conversion Cycle
CFA Practice Question
Which one of the following is true?
A. The inventory period of the operating cycle ends when the receivable it creates is actually paid by the customer.
B. The length of the operating cycle is always greater than or equal to the length of the cash cycle.
C. The inventory period plus the accounts receivable period is equal in length to the operating cycle plus the cash cycle.
Explanation: A. The inventory period ends when the receivable is created. C. The operating cycle is equal in length to the inventory period plus the accounts receivable period.
User Contributed Comments 4
| User | Comment |
|---|---|
| MBCs | How would a company's operating cycle and inventory period be calculated if products are made to order and payment is required before a product is manufactured/finished? (e.g. Dell computers) Would the AR period be negative? Is it possible for an inventory period or operating cycle to be negative? Just curious - probably won't be on the exam |
| sagrr | nobody cares |
| bidisha | Some people do it for the love of learning, I definitely am not there yet. May be due to the pressure. |
| santibanez | MBC, I think a negative operating cycle is possible if the negative receivables period is greater than inventory period. The company is being financed by clients. What I'm sure of is cash cycle is negative in the retail sector as retailers have great acc payable periods, 0 AR and very short inventory periods. |