Question

An increase in which one of the following will decrease the cash cycle, all else equal?

O Operating cycle

O Accounts receivable period

O Days sales in inventory

O Inventory turnover rate

O Payables turnover

Answer 1

The correct answer is Inventory Turnover Rate

Note :

Cash Cycle = Operating Cycle - Payables Period

Further the Operating Cycle = Inventory Period + Receivables Period

Inventory Period = Number of Years in a Year / Inventory Turnover

Inventory Turnover =  Cost of Goods Sold/ [(Opening + Closing Inventory)/2]

Now, if the Inventory Turnover increases , the Inventory Period would decrease.

Further, if the Inventory Period decreases the Operating Cycle would decrease.

Also, since the Cash Cycle = Operating Cycle - Payables Period, a decrease in the Operating Cycle would decrease the Cash Cycle .