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.
Part B This case is intended to be an introduction to the various methods used in capital budgeting and looks at some of the decisions that may have to be made when evaluating pro
What is the nature of a concessionary loan and how is it handled in the APV model? A concessionary loan is a loan that is provided by a governmental body at below the normal ma
Determine the objectives of Profit maximisation Profit maximisation remains one of the key objectives for the managers of the companysince many managers' compensations are lin
Q. Selection of a project in Financial Management ? The selection of a project is typically made on the following line: (i) In general a project becomes acceptable if it has
Q. Describes the Concept of Time value of Money? 'Time value of money' signifies that the value of a unit of money is different in different time periods. The worth of a sum of
How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit.
Discuss and compare hedging transaction exposure by using the forward contract vs. money market instruments. While do the alternative hedging approaches generate similar result?
What is trustworthy collateral from the lenders' perspective?Explain whether accounts receivable and inventory are trustworthy collateral. Assets that are readily marketable of
Explain about the Interest payments Debenture interest is generally paid semi-annually however annual payments aren't uncommon. Usually there are registered debentures on whic
discuss three approaches to short-term financing
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