Strategies to Optimize the Cash Conversion Cycle
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What strategies can a firm use to optimize its cash cycle?
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Solution Summary
This solution dissects the elements of the cash conversion cycle and offers suggestions to optimize its cash collections (or to minimize its cash losses) regarding each element.
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The cash cycle is the amount of time between the firm's outlay of funds for inventory (or services, if it is a service company) and the collection of funds from customers. By optimizing the cash cycle, the firm has more cash available to invest, and for a longer period of time, thus maximizing its returns.
The best purchasing strategy to minimize the amount of cash tied up in inventory is to adopt a "just-in-time inventory" (JIT) strategy. ...
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