As a firm's cash conversion cycle increases, the firm:

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As the cash conversion cycle increases, the firm is taking longer to convert its investments in inventory and accounts receivable into cash. This means that the firm is investing more in working capital, tying up cash that it could be using elsewhere. This can decrease profitability because the firm is earning less on its cash. However, options A, C, and D are not necessarily true. The cash conversion cycle does not directly affect profitability, it is possible for a firm to increase its investment in working capital without reducing its accounts payable period, and shortage costs are not necessarily affected by the cash conversion cycle.

As a Firm's Cash Conversion Cycle Increases, the Firm