Week 23 - Working Capital Management

Question 1

Cash operating cycle

Answer 1

Measures how quickly cash spent on inventory is recovered when that inventory is sold

Question 2

3 Ratios to determine cash operating cycle

Answer 2

Inventory days: (average inventory / cost of sales) x 365

Recievables days: (average receivables / credit sales) x 365

Less payables days: (average payables / credit purchases) x 365

Averages calculated by using: opening balance + closing balance / 2 w.g. Opening inventory + closing inventory / 2