A firm wants to reduce its cash cycle. Which of the following actions will reduce its cash cycle?
A)The firm reduces its DSO.
B)The firm increases its inventory.
C)The firm reduces its accounts payable.
D)All of these are actions that will reduce its cash cycle.

Question

Quizplus · Accepted Answer

Reducing DSO (Days Sales Outstanding) will decrease the time it takes for the firm to collect its accounts receivable and consequently reduce the cash cycle. Increasing inventory will lengthen the cash cycle, and reducing accounts payable will reduce the time that the firm can hold onto its cash before paying its suppliers, potentially increasing the cash cycle. Therefore, only option A is the correct choice.

A Firm Wants to Reduce Its Cash Cycle