The cash conversion cycle (CCC) combines three factors-the inventory conversion period, the receivables collection period, and the payables deferral period-and its purpose is to show how long a firm must finance its operating working capital. Other things held constant, the shorter the CCC, the more effective the firm's working capital management.

Question

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The statement accurately describes the purpose and significance of the cash conversion cycle. A shorter CCC indicates that a firm is able to manage its working capital more efficiently, which can improve its financial performance.

The Cash Conversion Cycle (CCC) Combines Three Factors-The Inventory Conversion