Which of the following options lists the components used to calculate the working capital cycle?

• A. Raw materials holding period; WIP holding period; Finished goods holding period; Receivables collection period; Less: payables payment period
• B. Raw materials holding period
• C. Raw materials holding period; WIP holding period; Finished goods holding period
• D. Receivables collection period; Payables payment period only

Answer: (C)

The key idea here is understanding what ties up working capital in production and stock. The working capital cycle, in its inventory-focused form, is determined by how long capital sits in the three stock stages: raw materials, work in progress, and finished goods. Each holding period shows how long resources are locked before they are turned into cash through sales. Raw materials holding period measures the time from raw material purchase to the start of production, work in progress holding period covers the time materials are in production, and finished goods holding period tracks how long completed goods sit before being sold. These three components together capture the inventory conversion part of working capital.

Receivables collection period and payables payment period relate to cash inflows and outflows from customers and suppliers and affect the broader cash conversion cycle, but they’re not the components listed when focusing on the inventory-driven part of the working capital cycle. Hence, the three inventory holding periods form the appropriate set of components in this context.