These are sample practice MCQs created for exam preparation. These are NOT official exam questions.
BALANCE SHEET excerpt: Accounts Receivable $2.8M, Inventory $3.6M, Accounts Payable $1.9M. CASH FLOW STATEMENT: Operating cash flow improved by $450K this quarter. CFO MEMO: "Our working capital cycle must be under 75 days." If annual revenue is $18M, does the company meet the target?
Question:
BALANCE SHEET excerpt: Accounts Receivable $2.8M, Inventory $3.6M, Accounts Payable $1.9M. CASH FLOW STATEMENT: Operating cash flow improved by $450K this quarter. CFO MEMO: "Our working capital cycle must be under 75 days." If annual revenue is $18M, does the company meet the target?
BALANCE SHEET excerpt: Accounts Receivable $2.8M, Inventory $3.6M, Accounts Payable $1.9M. CASH FLOW STATEMENT: Operating cash flow improved by $450K this quarter. CFO MEMO: "Our working capital cycle must be under 75 days." If annual revenue is $18M, does the company meet the target?
Options
Answer: (E) Cannot determine without COGS data
Explanation:
The Working Capital Cycle is calculated using the Cash Conversion Cycle (CCC) formula: CCC=DSO+DIO−DPO To calculate the full cycle, we need: Days Sales Outstanding (DSO): Requires Accounts Receivable and Annual Revenue (Given). Days Inventory Outstanding (DIO): Requires Inventory and COGS (Missing). Days Payable Outstanding (DPO): Requires Accounts Payable and COGS (Missing). Since COGS is essential for calculating DIO and DPO, and it is not provided, the CCC cannot be determined. The correct choice is (E) Cannot determine without COGS data.
Explanation:
The Working Capital Cycle is calculated using the Cash Conversion Cycle (CCC) formula: CCC=DSO+DIO−DPO To calculate the full cycle, we need: Days Sales Outstanding (DSO): Requires Accounts Receivable and Annual Revenue (Given). Days Inventory Outstanding (DIO): Requires Inventory and COGS (Missing). Days Payable Outstanding (DPO): Requires Accounts Payable and COGS (Missing). Since COGS is essential for calculating DIO and DPO, and it is not provided, the CCC cannot be determined. The correct choice is (E) Cannot determine without COGS data.
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