Helena Furnishings Wants to Reduce Its Cash Conversion Cycle

question 102

Multiple Choice

Helena Furnishings wants to reduce its cash conversion cycle.Which of the following actions should it take?

• A) Increases average inventory without increasing sales.
• B) Take steps to reduce the DSO.
• C) Start paying its bills sooner,which would reduce the average accounts payable but not affect sales.
• D) Sell common stock to retire long-term bonds.
• E) Sell an issue of long-term bonds and use the proceeds to buy back some of its common stock.

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Definitions:

Turnover

In business, refers to the rate at which employees leave a company and are replaced by new hires; can also refer to the total sales in a given period.

Turnover

A financial metric indicating the rate at which a company's inventory is sold and replaced over a period.

Minimum Required Rate

Typically refers to the minimum rate of return on an investment that a manager or investor deems acceptable, taking into account risk and alternative investments.

Residual Income

The amount of income that an individual or company has after all personal debts and expenses, including the cost of capital, have been paid.