Which statement best describes the components of working capital days ratios?

Which statement best describes the components of working capital days ratios?

• A. Inventory days, A/R days, A/P days
• B. Inventory days only
• C. A/R days only
• D. A/P days only

Answer: (A)

Working capital days ratios are meant to reflect the entire cash conversion cycle, so they include the three timing elements that tie up capital: how long inventory sits before it’s sold, how long customers take to pay, and how long the company can delay paying suppliers. Therefore the complete set of components is inventory days, accounts receivable days, and accounts payable days. Each part captures a piece of the cycle: inventory days shows the speed of turning stock into sales, receivable days shows cash collection timing, and payable days shows deferral of cash outflow. Focusing on only one component misses the other two parts of the cycle, giving an incomplete picture of working capital efficiency.

Working capital days ratios are meant to reflect the entire cash conversion cycle, so they include the three timing elements that tie up capital: how long inventory sits before it’s sold, how long customers take to pay, and how long the company can delay paying suppliers. Therefore the complete set of components is inventory days, accounts receivable days, and accounts payable days. Each part captures a piece of the cycle: inventory days shows the speed of turning stock into sales, receivable days shows cash collection timing, and payable days shows deferral of cash outflow. Focusing on only one component misses the other two parts of the cycle, giving an incomplete picture of working capital efficiency.