Question

In order to achieve a negative cash conversion cycle a firm would want to:

A. increase its account payable period and its inventory turns
B. decrease its account payable period and its inventory turns
C. increase its account payable terms and decrease its inventory turns
D. decrease its account payable terms and increase its inventory turns
E. analyze systems and stop whatever processes are causing this, since a negative cash conversion cycle is associated with losses, not profits.

Answer 1

A. increase its account payable period and its inventory turns

Step-by-step explanation:

Negative cash conversion cycle means that a company uses less time to sell its inventory or requires less time to produce products from raw materials. It also uses less time to recieve cash from its customers compared to the time it uses to pay cash it owes.

So if a company is to have a negative cash conversion cycle it will need to increase the time it takes to pay parties it owes.

This will result in more cash reserves and returned cash it can use to purchase more products. Therefore number of inventory turnover will increase.