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The cash conversion cycle is an important tool to analyse liquidity. This means that business enterprises are able to pay for short-term debt. The cash conversion cycle will be short or long depends on 3 times duration of sales, inventory on hands, and payables. It is the fact that longer of firms’ cash conversion, the more short-term funds will be required for business expenditure. The shorter of cash conversion cycle reflects the cash from selling products before paying debt. Firms’ cash conversion cycle in different industries may vary from one to another. Previous researches findings significantly revealed that shortening the cash conversion cycle enhances a business’s profitability.
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