BU127 Chapter Notes - Chapter 3: Accounting Equation, Stock Market, Asset Turnover
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BU127 Full Course Notes
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Document Summary
Bu127- chapter 3: operating decisions and the income statement. Long-term objective: to turn cash into more cash. To stay in business, excess cash must be operations, not from borrowing money or selling generated from non-current assets. Operating (cash to cash) cycle: time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers. Companies attempt to shorten operating cycle by creating incentives to encourage customers to buy sooner or pay faster to improve company"s cash flow. Reducing time needed to turn cash into more cash (shortening operating cycle) = higher profits and faster growth. Excess cash = managers can buy additional inventory or other assets for growth, repay debt, or distribute to owners. Periodicity assumption: long life of a company can be reported in shorter periods. Measures income for a specific period of time (months, quarters, years)
