How Is a Company's Operating Cycle Determined

question 168

Multiple Choice

How is a company's operating cycle determined?

• A)Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.
• B)Adding the average number of days to sell inventory to the average number of days to collect receivables.
• C)Dividing cost of goods sold by average inventory.
• D)Dividing 365 days by the difference in the inventory turnover and receivable turnover.

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Definitions:

Comparative Balance Sheet

A financial statement that presents the assets, liabilities, and shareholders’ equity of a company at two or more different points in time, used to analyze trends in financial position.

Cash Dividends

Cash dividends are payments made by a corporation to its shareholder members. It is the share of profits distributed in the form of cash.

Operating Activities

Activities related to the day-to-day business operations, such as selling products or services, which generate most of a company's cash flow.

Comparative Balance Sheet

A financial statement that presents the assets, liabilities, and equity of an entity at two or more points in time for comparison purposes.