If a firm takes actions that reduce its days sales outstanding (DSO), then, other things held constant, this will lengthen its cash conversion cycle (CCC).

Question

Quizplus · Accepted Answer

The statement is false. A reduction in DSO, which measures the average amount of time it takes for a firm to collect payment from customers, would result in a shorter cash conversion cycle. The cash conversion cycle is calculated by subtracting the firm's average payment period from its average collection period, so a reduction in DSO would decrease the average collection period and therefore shorten the cash conversion cycle.

If a Firm Takes Actions That Reduce Its Days Sales