Cash Operating Cycle

Question 1

Cash Operating Cycle

Answer 1

Raw materials holding period
(Payables holding period)
WIP holding period
Finished goods holding period
Receivables collection period

Question 2

Gross Profit Margin using Additions

Answer 2

Revenue (Sales) - CoGS = Gross Profit

Question 3

Raw material holding period

Answer 3

raw material inventory/material usage (purchases) x365

Question 4

WIP holding period

Answer 4

WIP inventory held/production cost (CoS) x365

Question 5

Finished goods holding periods

Answer 5

Finished goods inventory held/cost of goods sold x365

Question 6

Working capital turnover

Answer 6

Revenue/net working capital

Question 7

Working capital requirement:
Trade receivables

Answer 7

Trade receivables days/365 x credit sales

Question 8

Working capital requirement:
Trade payables and inventory

Answer 8

Payables or inventory days/365* MATERIAL PURCHASES (likely CoS)

Question 9

Inventory holding period

Answer 9

Inventory/CoS*365

Question 10

CoS

Answer 10

Opening inventory + credit and cash purchases - closing inventory

Question 11

Payables Payment period

Answer 11

TP/CP. IS from date of delivery to payment date

Question 12

Factors determining the cash op cycle

Answer 12

Liquidity vs profitability
Terms of trade
Management efficiency
Industry norms

Question 13

Longer Cash operating cycles

Answer 13

Lower net operating cash flow = less cash needed to fund
Slower inventory turnover

Question 14

Shortening cash operating cycle

Answer 14

Longer to pay suppliers = cash stays in company for longer