an-accurately-determined-cash-conversation-cycle-ccc-plays-a-crucial-role-in-measuring-the-health-and-efficiency-of-the-business

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Discuss the benefits the company stands to gain by accurately determining the cash conversion cycle (CCC).

An accurately determined Cash Conversation Cycle (CCC) plays a crucial role in measuring the health and efficiency of the business. It measures the period, in days, in which the company’s cash is tied up in account receivables as well as inventories, where, the greater the frequency in which you can cycle the company’s cash through business per year, the higher the opportunity the company has to produce profits (Das, 2016). Accurately determining the cash conversion cycle helps the company to appropriately improve it. It helps the company to improve its cash flow as it helps to accurately pinpoint the specific areas that require improvement in order to increase the company’s cash flow, and gives the company the crucial knowledge to do so.

Discuss how an increase in the DPO will impact the cash conversion cycle?

Days payable outstanding (DPO) refers to the average number of days a company takes to pay back its payables, i.e. the number of days it takes the company to pay its creditors and suppliers. An increase in the DPO will lead to an increase in the cash conversion cycle, as the company will be taking longer time to pay the debt it owes its creditors and suppliers.

Reference

Das, S. (2016). Impact of cash conversion cycle for measuring the efficiency of cash management: A study on pharmaceutical sector. Accounting.