1. Why might a company want to reduce its cash conversion cycle? (Consider the financial statement...

Question

1. Why might a company want to reduce its cash conversion cycle? (Consider the financial statement implication of reducing the cash conversion cycle.)2; How might a company reduce its cash conversion cycle?3. Examine and discuss the potential impact both on customers and suppliers of taking the action identified in part 2.

David · Accepted Answer

Solution 1   
 Cash Conversion cycle measures the duration for which company will be deprived of 
 cash, if amount is invested to expand the customer sales. It is the measurement of  liquidity 
 risk instigated with growth.  It is a process or cycle, where company purchases goods, 
 sells goods on credit and then collects the amount from accounts receivable. It is 
 important for  the business to calculate the company’s cash conversion cycle. 
 If other things remain constant and Cash Conversion Cycle is reduced, amount tied up in funds will 
 also reduce automatically.

1. Why might a company want to reduce its cash conversion cycle? (Consider the financial statement implication of reducing the cash conversion cycle.)2; How might a company reduce its cash conversion...

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