Question

Which of the following is a firm's cash cycle?

a. the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product
b. the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory
c. the average length of time between when a firm pays cash to purchase its initial inventory and when it sells that product
d. the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory

Answer 1

he average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory

Step-by-step explanation:

A firm's cash cycle measure the time required for a company to go from cash paid (used in its operations) to cash received (as a result of operations)

It is an example of a liquidity ratio

Liquidity ratios measure the ability of a firm to meet its short term obligations

Cash cycle = days of inventory on hand + days of sales outstanding - number of days of payable

the shorter the cash cycle, the more liquid the firm is and the better for the firm