Working Capital Management - Working Capital - Working Capital and the Cash Cycle

4 important questions on Working Capital Management - Working Capital - Working Capital and the Cash Cycle

What is the cash conversion cycle?

Period between firm’s payment for materials and collection on its sales

What are the 4 elements of the simple cycle of operations?

1. Cash
2. Raw materials inventory
3. Finished goods inventory
4. Receivables

What are the 3 elements of the cash cycle / cash conversion cycle?

1. Inventory period
2. Accounts receivable period
3. Accounts payable period
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What is the formula for the accounts payable period?

Accounts payable period = accounts payable / (annual cost of goods sold/365)

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