ABC Company currently has a cash cycle of 215 days. The firm is considering making some changes...

Question:

ABC Company currently has a cash cycle of 215 days. The firm is considering making some changes as follows:

(i) increase the inventory period by 30 days,

(ii) increase the accounts receivable period by 13 days, and

(iii) increase the accounts payable period by 6 days.

Calculate the number of days in the new cash cycle after the above changes become effective?

That is, what is the new cash cycle?

Cash Cycle:

The cash conversion cycle also called the operating cycle measures how effective a company in managing its working capital. It expresses on average the amount of time it takes for a company to convert its inventories and credit sales into cash and pay the creditors their dues.

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Operating Cycle & Cash Cycle: Definition & Calculations

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Chapter 17 / Lesson 2
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The operating cycle and cash conversion cycle are both tools to evaluate the timeline of when a business will become profitable. Explore the calculations of each, and identify their importance to a business.


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