Business Cash Cycles

Question 1

Cash Cycle

Answer 1

Describes How Cash moves through a business as its assets and liabilities shrink and expand

Question 2

Average Cash Cycle Formula

Answer 2

Average Day’s Sales in Receivables + Average Days COGS in Inventory -Average DAys GOGS Payables = Average Days in Cash Cycle

Question 3

For A Manufactuer

Answer 3

Days Sales Outstanding in AR + Days Cogs In Inventory - Days COGS Purchases in AP

Question 4

Sources of Repayment

Answer 4

Cash Temporarily Available
  -AR account pays early
Cash Cycle Shortens
or  Sales Decline
Profit is Generated and retained - cash flow

Question 5

Limitation of Cash Cycle Analysis

Answer 5

All cash cycles calculation are averages with can mask irregularities or mislead you when analyzing seasonal companies

Cash cycle calculation excludes cash requirements for payments other than COGS.

Question 6

Cash Cycles By Industry

Answer 6

Businesses that make a substantial investment in current assets have a longer cash cycle and need more working capital.