Question

A firm wants to sharply reduce its cash conversion cycle. Which of the following steps would...

A firm wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle?

The company increases its average inventory without increasing its sales.

The company reduces its days sales outstanding (DSO).

The company starts paying its bills sooner, which reduces its average accounts payable without reducing its sales.

Statements A and B are correct.

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Homework Answers

Answer #1

Correct Answer is statement B
CCC it is a Net operating cycle
Cash Conversion Cycle = DSO + DIO - DPO
DSO = Days of sales outstanding
DIO = Days of inventory outstanding
DPO = Days of payale outstanding
If DSO is reduced therefore reduce in cashcoversion cycle
If DIO is increase therefore increase in the Cash coversion cycle
If DPO is reduced it will increase the cash conversion cycle.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

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