Cash conversion cycle
The text identifies three principal components that jointly comprise the cash conversion cycle. The cash conversion cycle is defined as the average length of time a dollar is tied up in current assets, and it is determined by the interaction between the inventory conversion period, receivables collection period, and the payables deferral period. Ideally, a company wants to minimize the cash conversion cycle as much as possible. In some circumstances, a firm has a comparative advantage in working capital management because of the nature of its business. We will look at the cash conversion cycles of companies and their implications.
In your initial response to the topic you have to answer all 6 questions.
You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.
Go to http://finance.yahoo.com and get a quote for one company of your choice. On the left column, scroll down and select âIncome Statement.â Write down the annual sales and cost of goods sold for the most recent two years.
Select the firm's Balance Sheet. Write down the balances shown for the firm's inventories, accounts receivable, and accounts payable.
Using the information from parts a and b, calculate its inventory turnover, accounts receivable turnover, and accounts payable turnover. You should show your work!
Calculate production cycle, collection cycle, and accounts payable cycle. You should show your work!
What is the companyâs cash conversion cycle? You should show your work!
Discuss the results that you receive in one paragraph. Should the company decrease cash conversion cycle? Please explain your answer.
In your responses to other students compare the cash conversion cycles of your company with the cash conversion cycle in another studentâs posting. What factors are responsible for these differences? Are these differences firm specific or are they consequences of the nature of the businesses in which these firms operate? Please explain your answers.
Cash conversion cycle
The text identifies three principal components that jointly comprise the cash conversion cycle. The cash conversion cycle is defined as the average length of time a dollar is tied up in current assets, and it is determined by the interaction between the inventory conversion period, receivables collection period, and the payables deferral period. Ideally, a company wants to minimize the cash conversion cycle as much as possible. In some circumstances, a firm has a comparative advantage in working capital management because of the nature of its business. We will look at the cash conversion cycles of companies and their implications.
In your initial response to the topic you have to answer all 6 questions.
You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.
Go to http://finance.yahoo.com and get a quote for one company of your choice. On the left column, scroll down and select âIncome Statement.â Write down the annual sales and cost of goods sold for the most recent two years.
Select the firm's Balance Sheet. Write down the balances shown for the firm's inventories, accounts receivable, and accounts payable.
Using the information from parts a and b, calculate its inventory turnover, accounts receivable turnover, and accounts payable turnover. You should show your work!
Calculate production cycle, collection cycle, and accounts payable cycle. You should show your work!
What is the companyâs cash conversion cycle? You should show your work!
Discuss the results that you receive in one paragraph. Should the company decrease cash conversion cycle? Please explain your answer.
In your responses to other students compare the cash conversion cycles of your company with the cash conversion cycle in another studentâs posting. What factors are responsible for these differences? Are these differences firm specific or are they consequences of the nature of the businesses in which these firms operate? Please explain your answers.
