Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Q. Consequence of the cash operating cycle?
The cash operating cycle is the length of time among paying trade payables and receiving cash from receivables. It is able to be calculated by adding together the average inventory holding period and the average receivables' deferral period and then subtracting the average payables' deferral period. The inventory holding period perhaps subdivided into the holding periods for raw materials work-in-progress and finished goods. In words of accounting ratios the cash operating cycle is able to be approximated by adding together inventory days and receivables days (receivables' ratio) and subtracting payables days (payables' ratio). If payables are paid prior to cash is received from receivables the cash operating cycle is positive if receivables pay before trade payables are paid the cycle is negative.
The consequence of the cash operating cycle in determining the level of investment in working capital is that the longer the cash operating cycle the higher the investment in working capital. The length of the cash operating cycle differ among industries for instance a service organization may have no inventory holding period a retail organization will have a inventory holding period based almost entirely on finished goods and a very low level of receivables and a manufacturing organization will have a inventory holding period based on raw materials work-in-progress and finished goods. The stage of investment in working capital will thus depend on the nature of business operations.
The cash operating cycle as well as the resulting level of investment in working capital does not depend only on the nature of the business however. Companies within the similar business sector may have different levels of investment in working capital measured for example by the accounting ratio of sales/net working capital as a result of adopting different working capital policies. A moderately aggressive policy on the level of investment in working capital is characterized by lower levels of inventory and receivables this lower level of investment raises profitability but also increases the risk of running out of inventory or of losing potential customers due to better credit terms being offered by competitors. A moderately conservative policy on the level of investment in working capital has higher levels of investment in inventory and receivables: profitability is consequently reduced but the risk of stock-outs is lower and new credit customers may be attracted by more generous terms.
It is as well possible to reduce the level of investment in working capital by reducing the length of the cash operating cycle. This is achieved by decreasing the inventory holding period (for example by using JIT methods) by reducing the receivables deferral period (for example by improving receivables management) or by increasing the payables deferral period (for example by settling invoices as late as possible). In this manner an understanding of the cash operating cycle can assist in taking steps to improve working capital management and profitability.
Your research assistant went home early (rock concert related illness) and left you with the following table listing the expected returns, standard deviation, correlation with the
Identify whether the following items belong on the income statement or the balance sheet. a. Interest Expense IS l. Cash BS b. Prefer
Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had already invest
Account balance - Inherent risk At account balance / class of transaction level Balances susceptible to misstatement. History of errors. Complexity of transac
PLAYERS IN THE PRIMARY MARKET Some important players in the primary market are: Merchant Bankers When a company approaches the public for funds, merchant bankers manage
Default risk is the risk that arises when the issuer is not able to satisfy the terms and conditions of the obligation with respect to timely pa
what is the traditional gold standard? and how does it differ from our current monetary system.
Plugging back of the future of profit means the reinvestment by the concerns of its surplus in the business. it is an internal financial of the business and it is more suitable for
Define the Explicit cost of capital Explicit cost of retained earnings that involve no future flows to or from firm is minus 100 per cent. This must not tempt one to infer that
The United States of America issues US Treasuries, which are negotiable government debt obligations. They are popular because they are backed by the full
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd