If a company shortens its inventory holding period while maintaining sales, the most direct effect is usually to:
Correct answer: B. Release cash from working capital
- A. Increase funds tied up in inventory
- B. Release cash from working capital
- C. Increase the company’s long-term debt automatically
- D. Eliminate the need for trade credit
Explanation
A shorter inventory holding period means goods are converted into sales more quickly, reducing funds tied up in stock. This can release cash for other uses. It does not automatically change long-term debt or remove the need for trade credit.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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