Managing Working Capital. A new computer system allows your firm to more accurately monitor inventory and anticipate future inventory shortfalls. As a result, the firm feels more able to pare down its inventory levels. What effect will the new system have on working capital and on the cash conversion cycle?

I don't know what "pilgram" is -- but I'm sure it is not your School Subject.

The new computer system that allows your firm to more accurately monitor inventory and anticipate future inventory shortfalls will have a positive effect on working capital and the cash conversion cycle.

Working capital refers to the difference between a company's current assets and its current liabilities. It represents the amount of funds a company has available to meet its day-to-day operational expenses. A significant component of working capital is inventory, which ties up cash until it is sold.

By accurately monitoring inventory and anticipating future shortfalls, the firm can reduce its inventory levels. This means that it will need to invest less money in purchasing and holding inventory. As a result, the firm's working capital will be positively affected as it will require less cash tied up in inventory.

The cash conversion cycle (CCC) measures the time it takes for a company to convert its investments in inventory and other resources into cash inflows from sales. It is calculated by adding the days inventory outstanding (DIO) to the days sales outstanding (DSO), and subtracting the days payable outstanding (DPO).

With the new computer system, the firm will be able to manage inventory more accurately, which can lead to faster inventory turnover. This means that inventory will be converted into sales at a faster rate. As a result, the days inventory outstanding (DIO) will decrease, positively impacting the cash conversion cycle.

Furthermore, by accurately anticipating inventory shortfalls, the firm can proactively manage its inventory levels and avoid stockouts or excess inventory. This can lower the days sales outstanding (DSO), as the firm can more efficiently process orders and collect payment. Lowering the DSO will further improve the cash conversion cycle.

In summary, the new computer system that allows for accurate monitoring of inventory and anticipation of future shortfalls will lead to a reduction in inventory levels and improved inventory management. This will positively impact the firm's working capital by reducing the amount of cash tied up in inventory. It will also improve the cash conversion cycle by reducing the days inventory outstanding and potentially the days sales outstanding.