All other variables being equal, which of the following changes would have a beneficial effect on cash-to-cash cycle time?
All other variables being equal, which of the following changes would have a beneficial effect on cash-to-cash cycle time?
An increase in the value of accounts payable would have a beneficial effect on cash-to-cash cycle time. This is because it allows the company more time to pay its suppliers, effectively retaining cash for a longer period before making a payment. This extension in payment terms helps in reducing the cash-to-cash cycle time, thus improving the company's working capital efficiency by minimizing the need for external financing and maintaining better liquidity.
Correct answer is D
Cash-to-cash cycle time represents the time it takes for a company to convert its investment in inventory into cash received from customers. Increasing the value of accounts payable means that the company is taking longer to pay its suppliers, effectively extending the time it has to use the cash before settling its payables. This, in turn, reduces the cash-to-cash cycle time, which is often seen as a positive outcome because it allows the company to hold onto its cash for a longer period, potentially reducing the need for external financing and improving working capital efficiency. Options A, B, and C would typically have the opposite effect on the cash-to-cash cycle time and may increase working capital requirements.
An increase in the value of accounts payable: If accounts payable increase, it means that the company has more time to pay its suppliers without disbursing cash, which would reduce the cash-to-cash cycle time.
ideally reduction in inventory would be beneficial to cash -to- cash cycle time. Based on the options, next beneficial option would be increase in receivables (such as spare orders )
An increase in the value of accounts payable.