FIN 302 Lecture Notes - Lecture 6: Cash Conversion Cycle, Current Asset
Document Summary
Permanent current assets: turn into cash at end of specified period, as firms grow - require minimum inventory levels. Large firms have many types of inventory: a/r is not always collected on time. Fixed assets: buildings, production machinery and vehicles. Ideal - firm sells all of what it produces or purchases and matches its cash receipts with its cash payments: reality - there are always differences between production and sales and differences between cash inflows and cash outflows. Internal funds are not sufficient in financing build up of current assets (firm may require additional external financing). Level production: smoothes production schedules (uses labor and equipment efficiently at a lower cost but leads to fluctuation in current assets). Matching sales and production: requires greater capacity (which eliminates the large seasonal bulges or sharp reduction in current assets). However: it is very difficult if not impossible to match sales and production perfectly,
