boken kap 26 del 2 Flashcards
What is the operating cycle?
The interval between the arrival of inventory stock and the date when cash is collected from receivables.
What is the cash cycle?
The period from when cash is paid for materials to when cash is collected from receivables.
What causes the need for short-term financial decisions?
The gap between cash inflows and outflows.
How can the gap between cash inflows and outflows be filled?
By borrowing or holding liquid reserves.
How can the gap between cash inflows and outflows be shortened?
By changing the inventory period, receivable period, or payable period.
How is the operating cycle calculated?
Operating Cycle = Inventory Period + Accounts Receivable Period.
How is the cash cycle calculated?
Cash Cycle = Operating Cycle - Accounts Payable Period.
What is the accounts payable period?
The period the firm can delay payment for resources purchased.
What are the two key elements of short-term financial policy?
The size of the firm’s investment in current assets and the financing of current assets.
What characterizes a flexible policy?
Large current assets, little short-term debt, and more long-term debt.
What characterizes a restrictive policy?
Low ratio of current assets and much short-term debt.
What are carrying costs?
Costs that rise with the level of investment in current assets (opportunity costs, Cost of maintaining economic value of the item).
