When accounts payable exceed the sum of inventory and accounts receivable, net working capital is negative.
12. A cash conversion cycle is the period between a firm's payment for materials and collection on its sales.
13. If a firm increases its accounts payable period, other things equal, it increases the cash conversion cycle.
14. A firm's inventory period can be estimated by the ratio of inventory to daily output.
15. The lower the average level of inventory, the more profitable the firm.
16. A reduction in inventory levels from year-end to year-end would be considered a source of cash.
17. Net working capital will decrease when a firm buys raw materials on credit.
18. The factoring firm bears responsibility for default on accounts receivable purchased from a firm.
19. Banks will not usually lend the full value of the assets that are used as security. The safety margin is likely to be even larger in the case of loans that are secured by inventory.
20. A firm can reduce the cash conversion cycle by selling fewer goods on credit.
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