What should a firm’s goal be regarding the cash conversion cycle, holding other things constant? Explain your answer.

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What should a firm’s goal be regarding the cash conversion cycle, holding other things constant? Explain your answer.

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What should a firm’s goal be regarding the cash conversion cycle, holding other things constant? Explain your answer.

Explanation & AnswerSolution by a verified expert

Explanation

The goal of the company regarding the cash conversion cycle should be to keep its number lower. The lower the cash conversion cycle, the better it is as it indicates that the management of the company is better.
It can be shortened by decreasing the average collection period or increasing the payable deferral period.

Verified Answer

The motive of the company regarding the cash conversion cycle, all else being the same is to shorter the cash conversion cycle. The shorter the cash conversion cycle, the better the cash flow management.

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