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

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The cash conversion cycle is the time it takes for a firm to convert its investments in inventory and accounts receivable into cash. An increase in the cash conversion cycle means that the firm is taking longer to convert these investments into cash, indicating a higher investment in working capital. This can lead to increased costs associated with maintaining inventory and collecting accounts receivable, potentially reducing profitability. However, an increase in the cash conversion cycle does not necessarily mean the firm will reduce its accounts payable period or incur more shortage costs.

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