Certified Supply Chain Professional (CSCP) Practice Exam

What key metric measures the efficiency of fund flow?

1. Profit margin

2. Cash conversion cycle

3. Gross revenue

4. Return on investment

The correct answer is: Cash conversion cycle

The cash conversion cycle is a crucial metric that measures the efficiency of fund flow within a business. It reflects the time taken between outlaying cash for raw material and receiving cash from product sales. The cycle includes three components: the inventory conversion period, the accounts receivable conversion period, and the accounts payable deferral period. By analyzing the cash conversion cycle, organizations can assess how effectively they manage their working capital. A shorter cash conversion cycle indicates that a company efficiently turns its investments in inventory and other resources into cash flows, thus optimizing fund flow. This efficiency is vital because it can lead to improved liquidity and the ability to reinvest in the business. In contrast, metrics like profit margin and gross revenue do not provide insights into the timing of cash flows; they focus more on profitability and overall sales performance. Return on investment evaluates the return generated on specific investments rather than the efficiency of the cash cycle. Therefore, the cash conversion cycle stands out as the key metric for assessing fund flow efficiency.