Question

Which of the following statements regarding cash conversion cycle are TRUE?

A. Cash conversion cycle depicts the amount of days it takes for the firm to receive cash from sales
B. Cash conversion cycle is calculated as follows: day sales outstanding + days payable outstanding - days inventory outstanding
C. Cash conversion cycle is a measure of liquidity risk
D. Cash conversion cycle measure the time it takes for the firm to exhaust its cash in its operations

Answer 1

C

Step-by-step explanation:

Cash conversion cycle is an example of a liquidity ratio. It measures how long it takes for a company to go from cash paid for operations to cash received from operations.

Cash conversion cycle = days of sales outstanding + days of Inventory Outstanding - number of days of payables