IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information
Which statement about a very short cash operating cycle is most accurate?
A short cash operating cycle implies the company needs less working capital finance, other things equal, because cash is tied up in inventory and receivables for a shorter period before being recovered.
- AIt always signals poor credit control
- BIt implies the company needs less working capital finance, other things equalCorrect
- CIt means the current ratio must exceed 2
- DIt means inventory turnover is low
- It means payables are paid immediately
Explanation
A shorter cycle means cash is tied up for less time between paying suppliers and collecting from customers, so less financing is required. It does not determine the current ratio or imply low inventory turnover.
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