All else the same, shortening the ﬁrm's cash cycle will likely____________ the ﬁrm's proﬁtability.

Question

Quizplus · Accepted Answer

Shortening the firm's cash cycle means that the firm is collecting its receivables and selling its inventory faster, while also delaying payment of its accounts payable. This results in a faster conversion of sales into cash, which improves the firm's liquidity and cash position. As a result, the firm can invest the cash into new opportunities or pay down debt, which can ultimately lead to higher profitability.

All Else the Same, Shortening the ﬁRm's Cash Cycle Will