Cash conversion cycle Problem
. Kolan Inc. has annual sales of $36,500,000 ($100,000 a day on a 365-day basis).
The company is looking for ways to shorten its cash conversion cycle (calculated on a 365-day basis).
Their CFO has proposed new policies which would result in a 20 percent reduction in both average inventories and accounts receivables.
Accounts payable will remain unchanged.
What effect would these policies have on the company's cash conversion cycle?
a. 40 days shorter
b. 22 days shorter
c. 13 days shorter
d. 22 days longer
e. 40 days longer
The solution explains the calculation for cash conversion cycle and the effect on the cash conversion cycle of changes in current assets and liabilities