Dipa Trading Sdn Bhd. has an inventory turnover rate of 7.6, a payables turnover rate of 11.4, and a receivables turnover rate of 12.6. How long is the operating cycle?

a. 

76.99 days


b. 

 20.20 days


c. 

19.00 days


d. 

70.63 days

To calculate the operating cycle, we need to determine the number of days inventory is held and the number of days receivables are outstanding. The operating cycle is the sum of these two periods.

Here's the step-by-step process:

1. **Inventory Period**:
   The inventory turnover rate is 7.6. The inventory period is calculated as:
   \[
   \text{Inventory Period} = \frac{365 \text{ days}}{\text{Inventory Turnover Rate}} = \frac{365}{7.6} \approx 48.03 \text{ days}
   \]

2. **Receivables Period**:
   The receivables turnover rate is 12.6. The receivables period is calculated as:
   \[
   \text{Receivables Period} = \frac{365 \text{ days}}{\text{Receivables Turnover Rate}} = \frac{365}{12.6} \approx 28.97 \text{ days}
   \]

3. **Operating Cycle**:
   The operating cycle is the sum of the inventory period and the receivables period:
   \[
   \text{Operating Cycle} = \text{Inventory Period} + \text{Receivables Period} = 48.03 \text{ days} + 28.97 \text{ days} = 77 \text{ days}
   \]

Therefore, the operating cycle is approximately 76.99 days.

The correct answer is:

a. 76.99 days

Would you like more details or have any questions? 

Here are 5 questions you might want to ask:

1. What is the significance of the operating cycle for a business?
2. How does the payables turnover rate impact the cash conversion cycle?
3. Can you explain how different turnover rates affect the liquidity of a company?
4. How would changes in inventory management practices affect the operating cycle?
5. What strategies can a business use to shorten its operating cycle?

Tip: Understanding the operating cycle is crucial for managing a company's working capital effectively. It provides insights into how quickly a company can convert its products into cash.

Learn how to calculate the operating cycle using inventory turnover rate, payables turnover rate, and receivables turnover rate. Understand the significance of these ratios in determining the efficiency of business operations. Suitable for professionals and students of finance and business analytics.

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