Question

A negative cash conversion cycle is a good thing and can increase the value of a firm.

a) True b) False

Answer 1

Answer is true.

Cash conversion cycle, in simple terms, means that how much time a company is taking to selling its inventory and collecting cash from the customers.

buy inventory from suppliers - own inventory - sell inventory - get cash from customer.

Now negetive cash conversion means that company is generating revenues from customers before it pays its suppliers for the inventory. This is only possible if a company has strong hold in the market and suppliers cannot say no to the company regarding the payment terms.

For example: Amazon has negetive cash conversion cycle.