Which statement concerning the operating cash cycle (OCC) is true?
A) It is possible to have a negative OCC.
B) Reducing the time period for which inventory is held shortens the OCC.
C) The longer the OCC, the greater the amount of working capital required.
D) All of the statements are true.

Question

Quizplus · Accepted Answer

A) It is possible to have a negative OCC - this refers to situations where the company is able to collect cash from customers faster than it pays suppliers for inventory, resulting in a negative OCC.
B) Reducing the time period for which inventory is held shortens the OCC - this is true as a shorter inventory holding period means that cash is tied up in inventory for a shorter period, thereby reducing the OCC.
C) The longer the OCC, the greater the amount of working capital required - this is also true as a longer OCC means that cash is tied up in the operating cycle for a longer period, requiring more working capital to finance the cycle. Therefore, all the statements are true.

Which Statement Concerning the Operating Cash Cycle (OCC) Is True