RMA Credit Risk Certification Practice Exam

The question tests understanding of the cash conversion cycle, which shows how many days cash is tied up in operating working capital. It combines three components: how long customers take to pay (Days Sales in Receivables), how long inventory sits before it’s sold (Days COGS in Inventory), and how long you take to pay suppliers (Days in Accounts Payable). The cash conversion cycle is calculated as Days Sales in Receivables plus Days COGS in Inventory minus Days in Accounts Payable. This formula captures the idea that cash is tied up while you wait for receivables and while inventory is held, but is freed up when you delay paying suppliers. The option that uses DSO plus DIO minus DPO aligns with this concept, making it the correct choice. The other options either misplace the signs (which would incorrectly combine the components), replace CCC with a profitability ratio, or omit one of the essential components (the receivable part), so they don’t reflect the true cash cycle.