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?
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.
Answer and Explanation:
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fromChapter 17 / Lesson 2
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.