If a firm's inventory ratio increases, what will happen to the firm's cash cycle?
A)It will increase.
B)It will decrease.
C)It will increase and then slowly decrease back to the initial level.
D)It will decrease and the slowly increase back to the initial level.

Question

Quizplus · Accepted Answer

An increase in inventory ratio means that the firm is carrying more inventory on hand for a longer period of time. This means that cash is tied up in inventory and not available for other uses, which results in an increase in the firm's cash cycle.

If a Firm's Inventory Ratio Increases, What Will Happen to the Firm's