Cash conversion Cycle

[keep_running]

I understand how increasing the days of inventory will increase the cash conversion cycle, but do not understand how the increase in days of A/P would decrease the cash conversion cylce.
Wouldn’t it make sense that the cash conversion cycle would increase with more days in A/P because it takes longer to convert the A/P to cash?
Explain to me the answer with intuition.

 

[S2000magician]

I wrote an article on the cash conversion cycle that may be of some help here: http://financialexamhelp123.com/cash-conversion-cycle/

 

[Tartaglia]

Great article indeed, I am still drawing that timeline every time I run into CCC questions.
@S2000: I recently ran into a question that asked for the effect of a change in the ‘payable turnover ratio’ on the CCC. It took me while to figure out that #DaysPayables=365/A/P_Turnover, because I just hastily read the article and did not pay attention to the exact definition of #DaysXXXX (of course, IF I had read the curriculum carefully enough before…..). I could imagine others having a similar problem and I wonder if it would make sense to add maybe just 2-3 lines with the definition of #daysXXXX?

 

[S2000magician]

Take a look, Tartaglia.

 

[Tartaglia]

Fantastic, thanks for adding that in there!!
And thanks also for the entire website, highly useful!!!

 

[S2000magician]

My pleasure.