Question

1. When does the cash conversion cycle of a firm start and when does it end?

Answer 1

Answer:

Cash Conversion cycle is the time taken by the company to convert its resources into liquid cash flow. It is the net time taken in selling its inventories, collection of receivable and payment of its bills.

Cash Conversion cycle start when the company purchase inventories on accounts. Then time taken to sell the inventory is known as Days Inventory Outstanding. After selling its inventory on account, the company takes times to collect its accounts receivable which is known as Days Sales Outstanding. And, finally the cash conversion cycle ends when the company pays off its suppliers and time taken in paying the bill in known as Days Payable outstanding.