Following information has been available from the finance department of the Royal Industries: (1) The average receivable period is 45 days, while the average payable period is 30 days. (2) The average inventory holding p

CS Professional · Financial, Treasury and Forex Management · PYQS · December 2019
Following information has been available from the finance department of the Royal Industries: (1) The average receivable period is 45 days, while the average payable period is 30 days. (2) The average inventory holding period is 75 days. (3) The operating cash expenses of Royal Industries are ₹120 lakh annually at a constant rate. (4) Return on investment is 15%. (5) Number of days in a year are 360. From the above information, compute: (a) The cash cycle period in days, and cash turnover in terms of months.

Answer & Explanation:

(a) Cash Cycle Period and Cash Turnover Cash Cycle Period = Average Receivable Period + Average Inventory Holding Period - Average Payable Period Cash Cycle Period = 45 days + 75 days - 30 days Cash Cycle Period = 90 days Cash Turnover = Number of days in a year / Cash Cycle Period Cash Turnover = 360 days / 90 days Cash Turnover = 4 times In terms of months = 12 months / 4 times = 3 months

Topics: Working Capital Management

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