A firm wants to reduce its cash cycle. Which of the following actions will reduce its cash cycle?
A)The firm reduces its DSO.
B)The firm increases its inventory.
C)The firm reduces its accounts payable.
D)All of the options are actions that will reduce its cash cycle.

Question

Quizplus · Accepted Answer

Reducing the Days Sales Outstanding (DSO) which means the time taken by the firm to collect the payment for its sales will reduce the cash cycle. This will improve the cash flow of the firm as the money will be received faster. Increasing inventory or reducing accounts payable, on the other hand, will increase the cash cycle and will tie up the money for a longer period. Therefore, only choice A is the correct option.

A Firm Wants to Reduce Its Cash Cycle