Your firm is considering several options concerning its inventory, receivables, and payables. Data is shown below. Required:
Question:
Required:
(a) Which option has the longest operating cash cycle?
(b) Which option has the shortest operating cash cycle?
Options Number of Days Average inventory turnover period Average collection period for receivables 4557 30 30 6 60 75 Average payment period for payables55 90 6030 60 45 110 72 86 3030 60 30 40
Step by Step Answer:
Options 1 2 3 4 5 6 7 Number of Days Average inventory turnover period 72 86 ...View the full answer
Financial Management for Decision Makers
ISBN: 978-0138011604
2nd Canadian edition
Authors: Peter Atrill, Paul Hurley
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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