To improve the cash conversion cycle a firm would want to decrease the average collection period, decrease days inventory held and increase days payable outstanding.

Question

Quizplus · Accepted Answer

This statement is true. A decrease in the average collection period and days inventory held will decrease the time it takes for a firm to convert its investments into cash, resulting in a shorter cash conversion cycle. Additionally, increasing days payable outstanding extends the amount of time a firm has to pay its bills, effectively increasing its cash on hand and again reducing the cash conversion cycle.

To Improve the Cash Conversion Cycle a Firm Would Want