(a) Give the meaning of Cash Conversion Cycle (CCC). (b) State the relationship between the CCC and the quantum of working capital required by a business. (c) Calculate the Gross working capital for Ojas Ltd. from given details.

Question

Accepted Answer

(a) **Cash Conversion Cycle (CCC)** is the length of time between a firm's purchase of inventory and the receipt of cash from accounts receivable. It represents the period during which cash is tied up in business operations — from the moment cash is spent on raw materials or goods until it is recovered through customer payments.

(b) **Relationship between CCC and Working Capital:**
The longer the cash conversion cycle, the greater the quantum of working capital required by a business. This is because during the entire CCC period, the business's cash is locked in inventory and receivables and cannot be used for other purposes. A business with a short CCC (like a retail shop) needs less working capital, while a business with a long CCC (like a manufacturing unit) needs more working capital to sustain operations.

(c) **Gross Working Capital for Ojas Ltd.:**
Current Assets:
- Stock = ₹1,00,000
- Debtors = ₹2,50,000
- Cash = ₹38,000
- Short-term Investments = ₹2,00,000

Gross Working Capital = Total Current Assets
= 1,00,000 + 2,50,000 + 38,000 + 2,00,000
= **₹5,88,000**