Business Studies · Working Capital Management

Statement 1: The Operating Cycle of a firm represents the total time elapsed between the purchase of raw materials and the collection of cash from sales, and it is calculated as the sum of the inventory storage period and the accounts receivable period, which determines the fundamental liquidity needs of the organization. Statement 2: A reduction in the Operating Cycle always leads to an improvement in the firm's profitability because it allows the company to generate more sales with a smaller investment in current assets, thereby increasing the Return on Investment and reducing the interest costs associated with short-term bank borrowings. Statement 3: When analyzing the Operating Cycle for a retail organization, the Work in Process Conversion Period is typically zero because the nature of the business involves purchasing finished goods for direct sale rather than manufacturing products from raw materials. Which of the following describes the validity of these statements?