Indicate the effect that the following will have on the operating cycle. Use the letter I to
Question:
Indicate the effect that the following will have on the operating cycle. Use the letter I to indicate an increase, the letter D for a decrease, or the letter N for no change.
a. Receivables average goes up.
b. Credit repayment times for customers are increased.
c. Inventory turnover goes from 3 times to 6 times.
d. Payables turnover goes from 6 times to 11 times.
e. Receivables turnover goes from 7 times to 9 times.
f. Payments to suppliers are accelerated.
Step by Step Answer:
a I Increase If receivables go up the time to collect the receivab...View the full answer
Essentials of Corporate Finance
ISBN: 978-1260013955
10th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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