Days Payable is useful with which other two day measures?

• A. Days AR and Days Inventory
• B. Days AR and Days Payable
• C. Days Inventory and Days Sales
• D. Days Sales and Days Payable

Answer: (A)

Understanding how cash moves in a business starts with the cash conversion cycle, which uses three timing measures: how long it takes to collect money from customers (Days Accounts Receivable), how long inventory sits before it’s sold (Days Inventory), and how long you take to pay suppliers (Days Payable). Days Payable is most informative when looked at together with the other two because they collectively reveal how long cash is tied up in operations. The CCC is typically calculated as Days Inventory plus Days Receivable minus Days Payable, so you need the other two measures to see the full effect of payables on cash flow. That’s why the best pairing for Days Payable is with Days Accounts Receivable and Days Inventory. The other options leave out one of the essential components and don’t give the complete picture of working capital timing.