Cash conversion cycle
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Cash Conversion Cycle. What effect will the following events have on the cash conversion cycle?
a) Higher financing rates induce the firm to reduce its level of inventory.
b) The firm obtains a new line of credit that enables it to avoid stretching payables to its suppliers.
c) The firm factors its accounts receivables.
d) A recession occurs, and the firm's customers increasingly stretch their payables.
Cash Conversion Cycle = Inventory Conversion Period + Accounts Receivable Conversion Period - Payables Deferral Period.
If the level of inventory is reduced then the inventory ...
This solution looks at the impact on the cash conversion cycle due to different events.