Working Capital And Liquidity Flashcards
Cash conversion cycle
It measures the efficiency of a company’s cash how management.it represents the time taken to convert its investments in inventory and other resources into cash inflows from . Sales
Cash conversion cycle
Inventory days + receivable days - payable days
Inventory days
→ 365/inventory turnover ratio
→ Inventory turnover ratio: cogs/inventory
Receivable days
→ 365 debtor turnover ratio
→ debtor turnover ratio: credit sales / debtors
Payable days
→ 365 / credit turnover ratio
→ credit turnover ratio-: credit purchases/ creditors
Total working capital
Ca-cl
Net working capital
CA - cash or cash equivalents-CL (long team liabilities)
How can one reduce ccc
→ reduce inventory days
→ reduce receivable day
→ increase payable days.
Liquidity.
For an asset, liquidity refers to nearness to cash.
For a liability,liquidity refers to nearness to settlement.
Factors affecting liquidity.
→ increase in ccc reduces liquidity known as a drag.
→ decrease in ccc increases liquidity known as a pull.
Current ratio
Current assets/current liabilities
Quick ratio/acid test ratio
Quick assets (cash+marketable securities+ receivables )/ current liabilities
