A ﬁrm currently has a 43 day cash cycle. Assume that the ﬁrm changes its operations such that it increases its receivables period by 2 days, decreases its inventory period by 1 day and increases its
Payables period by 3 days. What will the length of the cash cycle be after these changes?

Question

Quizplus · Accepted Answer

The cash cycle is calculated as: Cash Cycle = Receivables Period + Inventory Period - Payables Period. The initial cash cycle is 43 days. With the changes: Receivables Period increases by 2 days, Inventory Period decreases by 1 day, and Payables Period increases by 3 days. The net change is +2 - 1 - 3 = -2 days. Therefore, the new cash cycle is 43 - 2 = 41 days.

A ﬁRm Currently Has a 43 Day Cash Cycle