CFA Level I · CFA Level I Exam · Working Capital and Liquidity
Compared with a peer, a company has a much longer cash conversion cycle driven by a high days of sales outstanding. This is most likely to indicate:
A longer cash conversion cycle caused by high days of sales outstanding most likely indicates greater working capital financing needs. Cash is tied up longer in receivables before it is collected, so the company must fund the gap.
- Amore efficient inventory management
- Bgreater financing needs for working capitalCorrect
- Cstronger bargaining power over suppliers
Explanation
A longer cycle driven by slow collection ties up cash in receivables, so more financing is needed. Inventory efficiency and supplier power relate to inventory and payables days, not receivables days.
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