"Corporate Finance":Financial Analysis Techniques

B is correct. Operating cycle = Number of days of inventory + Number of days of receivables. Cash conversion cycle = Operating cycle – Number of days of payables.

Therefore, both the operating and cash conversion cycles are longer for the company. A is incorrect. See table. C is incorrect. See table.

C is correct. DTL = Revenue – Variable cost/Net income = £800,000 – £400,000/£140,000 = 2.86. A is incorrect because it is the degree of financial leverage (DFL). DFL = Operating income/Net income = £200,000/£140,000 = 1.43 B is incorrect because it is the degree of operating leverage (DOL). DOL = (Revenue – Variable cost)/Operating Income = [(£800,000 – £400,000)/£200,000] = 2.00