Question

Which of the following is NOT true of the cash conversion​ cycle?

A. Cash Conversion Cycle​ = Production Cycle​ + Collection Cycle minus Payment Cycle
B. It is the net period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.
C. Cash Conversion Cycle​ = Production Cycle​ + Collection Cycle​ + Payment Cycle
D. The cash conversion cycle essentially measures how quickly a company can convert its products or services into cash.

Answer 1

Answer:

C. Cash Conversion Cycle​ = Production Cycle​ + Collection Cycle​ + Payment Cycle

Explanation:

At first glance, it is easy to identify that alternatives A and C are antagonistic meaning that one or the other must NOT be true.

Cash conversion cycle (CCC) describes the amount of days a company requires  to convert its investments into cash flows from sales.

Production Cycle​ and Collection Cycle are both related to assets and thus are positive in the equation for the CCC. The payment cycle is a liability and therefore must be taken as negative in the equation.

The alternative C. Cash Conversion Cycle​ = Production Cycle​ + Collection Cycle​ + Payment Cycle is NOT true