Which of the following would result in a negative cash conversion cycle?
A) A negative cash conversion cycle is not possible.
B) Average collection period 7 days, inventory conversion period 30 days, payables deferral period 30 days.
C) Average collection period 60 days, inventory conversion period 30 days, payables deferral period 7 days.
D) Average collection period 7 days, inventory conversion period 30 days, payables deferral period 60 days.

Question

Quizplus · Accepted Answer

The cash conversion cycle (CCC) is calculated as the inventory conversion period plus the receivables collection period minus the payables deferral period. In option D, the CCC = 30 (inventory) + 7 (receivables) - 60 (payables) = -23 days, which is a negative cash conversion cycle, indicating that the company pays its suppliers after it collects cash from its customers.

Which of the Following Would Result in a Negative Cash