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.

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.

Do give a thumbs up if you find this help

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which action would NOT be likely to shorten the length of the cash conversion cycle? a....
Which action would NOT be likely to shorten the length of the cash conversion cycle? a. adopting a new inventory system that reduces the inventory conversion period b. reducing the average DSO on its accounts receivable c. reducing the amount of time the company takes to pay its suppliers d. increasing sales while maintaining the same level of receivables
DJ Inc.'s CFO would like to decrease its cash conversion cycle by 10 days (based on...
DJ Inc.'s CFO would like to decrease its cash conversion cycle by 10 days (based on a 365 day year). The company carries average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold is 75% of annual sales, and its average collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. The CFO believes he can reduce the average inventory...
If a firm wants to decrease its cash conversion cycle, which of the following actions should...
If a firm wants to decrease its cash conversion cycle, which of the following actions should it take? Assume everything else is equal. a. Loosen credit terms to increase the firm's sales. b. Delay payments made to suppliers so that the firm pays late. c. Purchase more raw materials to increase the average inventory the firm maintains. d. Increase the amount the firm borrows from its bank. e. Decrease the common equity on the firm's balance sheet.
Which of the following statements are CORRECT? If a firm takes actions that increase its days...
Which of the following statements are CORRECT? If a firm takes actions that increase its days sales outstanding (DSO), then, other things held constant, this will shorten its cash conversion cycle (CCC). Other things held constant, if a firm "stretches" (i.e., delays paying) its accounts payable, this will lengthen its CCC. Other things held constant, adopting a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days will lengthen the...
(1) Use the information below to compute the number of days in the cash conversion cycle...
(1) Use the information below to compute the number of days in the cash conversion cycle for each company. (2) Which company is more effective at managing cash?    Spartan Co. Chen Co. Days' sales in accounts receivable 42 55 Days' sales inventory 25 29 Days' sales in accounts payable 32 37 Spartan Co. Chen Co. Cash to cash conversion cycle More Effective Cash Management    
Cash Conversion Cycle: American Products is concerned about managing cash efficiently. On average, inventories have an...
Cash Conversion Cycle: American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million. a) Calculate the firm's operating cycle b) Calculate the firm's cash conversion cycle c) Calculate the amount of resources needed to support the...
Whitson Co. is looking for ways to shorten its cash conversion cycle. It has annual sales...
Whitson Co. is looking for ways to shorten its cash conversion cycle. It has annual sales of $45,625,000, or $125,000 a day on a 365-day basis. The firm's cost of goods sold is 60% of sales. On average, the company has $7,500,000 in inventory, $5,750,000 in accounts receivable, and $2,750,000 in accounts payable. Its CFO has proposed new policies that would result in a 25% reduction in both average inventories and accounts receivable, and a 10% increase in average accounts...
P15-1 Cash conversion cycle American Products is concerned about managing cash efficiently. On average, inventories have...
P15-1 Cash conversion cycle American Products is concerned about managing cash efficiently. On average, inventories have an age of 80 days, and accounts receivable are collected in 40 days. Accounts payable are paid approximately 30 days after they arise. The firm has annual sales of about $30 million. Goods sold total $20 million, and purchases are $15 million. Calculate the firm’s operating cycle. Calculate the firm’s cash conversion cycle. Calculate the amount of resources needed to support the firm’s cash...
Increased Efficiency, Inc. is looking for ways to shorten its cash conversion cycle. It has annual...
Increased Efficiency, Inc. is looking for ways to shorten its cash conversion cycle. It has annual sales of $36,500,000, or $100,000 a day on a 365-day basis. The firm's cost of goods sold is 65% of sales. On average, the company has $9,000,000 in inventory and $8,000,000 in accounts receivable. Its CFO has proposed new policies that would result in a 20% reduction in both average inventories and accounts receivable. She also anticipates that these policies would reduce sales by...
1) Other things held constant, which strategy would tend to reduce the cash conversion cycle? a....
1) Other things held constant, which strategy would tend to reduce the cash conversion cycle? a. placing larger orders for raw materials to take advantage of price breaks b. maintaining the same level of receivables as sales decline c. Increasing the inventory conversion period d. lengthening the payables deferral period 2) Your company has been offered credit terms of 3/30, net 90 days. What will the nominal annual cost of trade credit be if you pay 100 days after the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT