header bg

Question:

Quixote Co. and Sisyphus Co., two similar-sized competitors, have had stable operating cycles of 180 days and cash conversion cycles of 140 days over the past several years. Sisyphus’ operating and cash conversion cycles remained at these levels in the most recent year, but Quixote’s cash conversion cycle contracted to 120 days while its operating cycle remained at 180 days. Relative to Sisyphus, Quixote has most likely begun:

A taking more time to pay its suppliers.
Explaination

The cash conversion cycle is equal to the operating cycle minus the number of days of payables. If Quixote is extending the time it takes to pay its suppliers, its number of days of payables will increase., and its cash conversion cycle will decrease. Its operating cycle (days of inventory plus days of receivables) is unaffected by the increase in days of payables. Changes in inventory or receivables management would affect both the operating cycle and the cash conversion cycle.