What will increase the operating cycle?
The payment terms extended to the company by its suppliers Longer payment terms shorten the operating cycle, since the company can delay paying out cash The order fulfillment policy, since a higher assumed initial fulfillment rate increases the amount of inventory on hand, which increases the operating cycle
Which of the following increases the cash cycle?
The correct answer to the given question is option B Having a larger percentage of customers paying with cash instead of credit
Which of the following will decrease the net operating cycle?
increase in payment period decreases operating cycle
What are the periods involved in operating cycle?
The operating cycle is the sum of the following: the days’ sales in inventory (365 days/inventory turnover ratio), plus the average collection period (365 days/accounts receivable turnover ratio)
What factors affect the operating cycle?
The following are all factors that influence the duration of the operating cycle and cash cycle: The payment terms extended to the company by its suppliers The order fulfillment policy The credit policy and related payment terms
Which one of the following actions will tend to increase the inventory period?
Which one of the following actions will tend to increase the inventory period? Increasing inventory selection to attract more customers The operating cycle is equal to the: Inventory period plus the accounts receivable period
Which of the following decreases the cash cycle?
An increase in the accounts payable turnover rate decreases the cash cycle
What does operating cycle indicate?
An Operating Cycle (OC) refers to the days required for a business to receive inventoryInventoryInventory is a current asset account found on the balance sheet, consisting of all raw materials, work-in-progress, and finished goods that a, sell the inventory, and collect cash from the sale of the inventory
How is the operating cycle and cash conversion cycle use?
The operating cycle is the number of days between when you buy inventory and when customers pay for the inventory The cash conversion cycle is the number of days between when you pay for inventory and when you get paid by your customers for the inventory
Which of the following will increase the duration of the net operating cycle?
The answer is D Decreasing the accounts receivable turnover rate
Why is increase in working capital a cash outflow?
In investment analysis, increases in working capital are viewed as cash outflows, because cash tied up in working capital cannot be used elsewhere in the business and does not earn returns An increase in working capital implies that more cash is invested in working capital and thus reduces cash flows
Which of the following will decrease the cash flow from operating activities?
Decrease in Net Income As operating cash flow begins with net income, any changes in net income would affect cash flow from operating activities If revenues decline or costs increase, with the resulting factor of a decrease in net income, this will result in a decrease in cash flow from operating activities
What is the operating cycle quizlet?
Operating Cycle The period between the acquisition of inventory and the collection of cash from receivables = Inventory Period + Accounts Receivables Period Inventory Period The time it takes to acquire and sell inventory
Which of the following businesses would most likely have the longest operating cycle?
Which of the following businesses would most likely have the longest operating cycle? A Christmas tree farm
Does capital increase cash?
If a company’s owners invest additional cash in the company, the cash will increase the company’s current assets with no increase in current liabilities Therefore working capital will increase The reason is that the current asset Cash increased by $50,000 and the current liability Loans Payable increased by $50,000
What are the factors that affect the operating cycle and cash cycle of both companies?
Top 13 Factors affecting the Working Capital of a Company Length of Operating Cycle: The amount of working capital directly depends upon the length of operating cycle Nature of Business: Scale of Operation: Business Cycle Fluctuation: Seasonal Factors: Technology and Production Cycle: Credit Allowed: Credit Avail:
What is the source of raising working capital?
Sources of Working Capital Spontaneous Sources Short Term Sources Short Term Sources Internal Sources External Sources Trade Credit Tax Provisions Bank Overdraft Sundry Creditors Dividend Provisions Trade Deposits Bills Payable Public Deposits
Which one of the following equals the operating cycle quizlet?
The cash cycle plus the accounts receivable period is equal to the operating cycle
Which one of these affects the length of the cash cycle but not the operating cycle?
Increasing accounts receivable Which of these affects the length of the cash cycle but not the operating cycle? Both the accounts receivable and inventory periods
Which one of the following will decrease net working capital of a firm?
Question: Which one of the following will decrease net working capital of a firm? A decrease in accounts payable An increase in the firm’s checking account balance An increase in inventory A decrease in fixed assets A decrease in accounts receivable
Which one of the following will decrease the cash conversion cycle?
As accounts payable increases (accounts payable/cost of goods sold*365) will increase causing Cash conversion cycle to decrease
Which one of the following is considered an operating activity?
Operating activities are the daily activities of a company involved in producing and selling its product, generating revenues, as well as general administrative and maintenance activities Key operating activities for a company include manufacturing, sales, advertising, and marketing activities
How management can reduce the cash conversion cycle?
Answer: Manage your inventory more efficiently: Companies can reduce their cash conversion cycles by turning over inventory faster The quicker a business sells its goods, the sooner it takes in cash from sales and begins its accounts receivable aging
Which of the following steps are included in operating cycle?
There are three basic steps in the operating cycle: buying inventory with cash, selling inventory for credit, and receiving payment for sale
Is a high operating cycle good?
Length of a company’s operating cycle is an indicator of the company’s liquidity and asset-utilization Generally, companies with longer operating cycles must require higher return on their sales to compensate for the higher opportunity cost of the funds blocked in inventories and receivables
Is higher cash conversion cycle better?
The cash conversion cycle (CCC) is one of several measures of management effectiveness It measures how fast a company can convert cash on hand into even more cash on hand Generally, the lower the number for the CCC, the better it is for the company
Which is greater between operating cycle and cash conversion cycle?
A shorter operating cycle indicates that a company’s cash is tied up for a shorter period of time, which is generally more ideal from a cash flow perspective Also known as a cash conversion cycle, a cash cycle represents the amount of time it takes a company to convert resources to cash
What is the length of the cash operating cycle?
The cash operating cycle (also known as the working capital cycle or the cash conversion cycle) is the number of days between paying suppliers and receiving cash from sales Cash operating cycle = Inventory days + Receivables days – Payables days