Question

QUESTION 19 Which one of the following defines the cash cycle? A Operating cycle minus the accounts payable period. B. Operating cycle minus the inventory period. o Operating cycle minus the accounts receivable period. D. Inventory period plus the accounts payable period. E. Inventory period plus the accounts receivable period. QUESTION 20 The Du Pont identity can be best defined by which one of the following? O A Return on equity, total asset turnover, and equity multiplier B. Profit margin, debt-to-equity ratio, and return on equity Total asset turnover, profit margin, and debt equity ratio D. Equity multiplier return on assets, and profit margin E. Profit margin and retum on assets Proctorio is sharit

Answer 1

19)

Operating cycle refers to number of days a company takes in converting its inventories to cash. It equals the time taken in selling inventories (days inventories outstanding) plus the time taken in recovering cash from trade receivables (days sales outstanding).

Hence, Operating cycle = Inventory days + Trade Receivables days

Cash cycle =

Inventory days + Receivables days – Payables days

Hence, Cash Cycle is Operating Cycle minus the Accounts Payable period

Correct Answer is Option A