ECONOMICS (CBSE/UGC NET)

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ECONOMICS

FINANCIAL MARKETS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A retail company changes its credit policy. Earlier it used to extend credit for 120 days, however now it extends it for 90 days. The most likely impact on the company’s balance sheet will be:
A
Trade receivables will increase
B
Trade payables will increase
C
Cash conversion cycle will increase
D
Cash conversion cycle will decrease
Explanation: 

Detailed explanation-1: -Hence, the cash conversion period is 35 days.

Detailed explanation-2: -Answer: The three components of the cash conversion cycle are: Days inventory outstanding (DIO), Days sales outstanding (DSO), and Days payable outstanding (DPO).

Detailed explanation-3: -Which of the following actions would be likely to shorten the cash conversion cycle? Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.

Detailed explanation-4: -Most companies will have a positive cash conversion cycle, representing that it takes X number of days for them to turn cash into inventory and back again. However, a negative CCC is also possible when a business receives payments for the goods it sells before it’s paid any of its suppliers.

There is 1 question to complete.
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