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Do you agree or disagree with these thoughts? Why or why not? A corporate cash conversion cycle is a measurement of the time it takes
Do you agree or disagree with these thoughts? Why or why not?
A corporate cash conversion cycle is a measurement of the time it takes for a company to convert its cash spent on inventory back into cash from sales. A recession occurs when the nation experiences a significant decline in economic activity. Thus, during a recession producing sales can be difficult, and a business can experience less profit leading to delayed investments and slower cash flow. A shorter corporate cash conversion cycle typically means that the company is healthier, but that is because the company has more liquidity and additional money to spend. Thus, I do not think it is a good decision by corporate CFOs to allow CCC to increase by a significant amount in most circumstances. Having a longer CCC also has its benefits, however. For example, having a large inventory can reduce the risk of shortage and help the business stay prepared to meet high demand. Sometimes a high CCC could also mean that a company is paying all of its expenses. Nonetheless, in most cases, a shorter CCC is preferable as cash is necessary to continue operations.
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