Asked by Itzamar Gutierrez on May 06, 2024
Verified
Which one of the following will not affect the operating cycle?
A) Decreasing the payables turnover from 7 times to 6 times.
B) Increasing the days sales in receivables.
C) Decreasing the inventory turnover rate.
D) Increasing the average receivables balance.
E) Decreasing the credit repayment times for the firm's customers.
Operating Cycle
The time period between the acquisition of inventory by a company and the receipt of cash from the sale of that inventory.
Payables Turnover
A financial efficiency ratio that measures how quickly a company pays off its suppliers by comparing net purchases to average accounts payable.
Inventory Turnover
Inventory Turnover is a measure of how often a company sells and replaces its stock of goods within a certain period, indicating efficiency in managing inventory.
- Acquire knowledge about the influence of inventory levels, accounts receivable, and accounts payable on a business's cash flow and its cycle of operations.
Verified Answer
JR
Jessica RamosMay 11, 2024
Final Answer :
A
Explanation :
The payables turnover ratio measures how quickly a company pays its suppliers, and a decrease in payables turnover would increase the cash cycle, causing a delay in payments. This will have an effect on the operating cycle. However, increasing days sales in receivables or inventory turnover rate, or increasing the average receivables balance will lengthen the operating cycle. On the other hand, decreasing the credit repayment times for the firm's customers will shorten the operating cycle.
Learning Objectives
- Acquire knowledge about the influence of inventory levels, accounts receivable, and accounts payable on a business's cash flow and its cycle of operations.