The cash conversion cycle (CCC) combines three factors: The inventory conversion period, the average collection period, and the payables deferral period, and its purpose is to show how long a firm must finance its working capital.Other things held constant, the shorter the CCC, the more effective the firm's working capital management.

Question

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The statement accurately describes the purpose and importance of the CCC in evaluating a firm's working capital management. A shorter CCC indicates that the firm is able to efficiently convert inventory into sales, collect cash from customers, and manage its payables, reducing the need for long-term financing and improving the firm's financial health.

The Cash Conversion Cycle (CCC) Combines Three Factors: the Inventory