- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 4. Working Capital and Liquidity
- Subject 1. Cash Conversion Cycle
CFA Practice Question
Which one of the following would decrease the length of the cash cycle, other factors remaining equal?
A. Increasing the accounts payable turnover rate or increasing the inventory period
B. Extending the credit terms for customers from 30 to 45 days
C. Increasing the accounts receivable turnover rate
Explanation: The other choices would increase the length of the cash cycle.
User Contributed Comments 5
| User | Comment |
|---|---|
| YUSHI | Why B does not extend cash cycle? |
| antihead | well it does. Increasing credit terms means that you are going to get less money paid within a certain time period., as comapared to before That means the balance of your receiveables will be higher as credit terms are longer and less cash is being received. As receiveables are added in the cash cycle equation, it eventually incrreases/Extends the cash cycle. |
| soukhov | increasing AR turnower rate means decrease receivibles in formula sales/receivibles |
| dipu617 | So? The higher the AR turnover, the better??? |
| hon132 | Higher turnover means less days in AR (getting cash back faster) so lower conversion cycle. B extend time people have to pay so they wait on payment, extending the cycle. |