### CFA Practice Question

There are 534 practice questions for this study session.

### CFA Practice Question

The following selected information (\$ millions) is from a company's most recent financial statements:

Items | 2014 | 2013
Sales | 2,801 | 2,885
Cost of Goods Sold | 1,969 | 2,071
Interest Expense | 123 | 110
Cash & Marketable Securities | 108 | 105
Accounts Receivable | 318 | 286
Inventories | 248 | 285
Accounts Payable | 361 | 346
Notes Payable | 50 | 99

The 2014 cash conversion cycle, in days, is closest to ______.
A. 19
B. 22
C. 26
Explanation: Inventory Turnover = COGS/Average Inventory = 1969/(248+285)/2 = 7.39
DOH (Days On Hand) = 365/Inventory Turnover = 365/7.39 = 49.4
Receivable Turnover = Sales/Average Receivables = 2801/(318+286)/2 = 9.27
DSO (Days Sales o/s) = 365/Receivables Turnover = 365/9.27 = 39.4
Purchases = Ending Inventory - Beginning Inventory + COGS = 248-285+1969=1932
Payables Turnover = Purchases/Average Payables = 1932/(361+346)/2 = 5.47
Days in Payables = 365/Payables Turnover = 365/5.47 = 66.7
Cash Conversion Cycle = DOH + DSO - Days In Pay = 49.4 + 39.4 - 66.7 = 22.1