The cash conversion cycle measures the time:
A)between the creation of receivables and their collection.
B)it takes for inventory to be turned into product and sold.
C)between payment for inventory and collection of cash for its subsequent sale as product.
D)for a check to clear the banking system.

Question

Quizplus · Accepted Answer

The cash conversion cycle measures the time it takes to convert cash spent on inventory into cash received from sales. Specifically, it measures the time between payment for inventory and collection of cash for its subsequent sale as a product. This includes the time it takes for inventory to be turned into product and sold, and the time between the creation of receivables and their collection. Option A is incorrect because it only measures the time from the creation of receivables to collection, not the entire cycle. Option B is partially correct, but it only measures the time it takes for inventory to be turned into a product and sold, not the full cycle. Option D is incorrect because it is unrelated to the cash conversion cycle.

The Cash Conversion Cycle Measures the Time