Conquer the CLTD Challenge 2025 – Navigate Your Path to Logistics Success!

The cash-to-cash cycle time is a vital metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. This calculation helps businesses understand how efficiently they are managing their working capital.

The correct method for calculating the cash-to-cash cycle time involves summing the days sales outstanding (the average number of days it takes to collect payment after a sale), the inventory days of supply (the average number of days inventory is held before it is sold), and then subtracting the days payables outstanding (the average number of days the company takes to pay its suppliers). This formula reflects that the cycle time is essentially the time it takes to turn investments into cash, minus the time you can defer paying your suppliers.

This approach provides a holistic view of a company's liquidity and the efficiency of its working capital management, allowing the business to identify areas for improvement in cash flow. Other options provided do not accurately represent this holistic view or are based on incomplete calculations, which is why they do not define the cash-to-cash cycle time correctly.