DECA Marketing Cluster Practice Exam

What does the cash conversion cycle measure?

1. The speed of product sales

2. How quickly cash can be turned into more cash

3. Employee performance rates

4. The duration of advertising campaigns

The correct answer is: How quickly cash can be turned into more cash

The cash conversion cycle measures how quickly a company can convert its investments in inventory and accounts receivable into cash flow from sales. This key metric is essential for assessing the efficiency of a company's management in turning its resources into cash. A shorter cash conversion cycle indicates that a company can recover its cash invested in working capital faster, which boosts liquidity and can provide more opportunities for reinvestment or other financial maneuvers. While other options touch on concepts related to business operations, they do not accurately reflect what the cash conversion cycle specifically measures. For instance, the speed of product sales (first option) may relate to turnover rates or sales velocity, which are different concepts. Employee performance rates (third option) and the duration of advertising campaigns (fourth option) focus on aspects unrelated to cash management or operational efficiency in terms of capital. Thus, the correct answer emphasizes the cycle's role in understanding and optimizing a company’s cash flow dynamics.