Reference no: EM133019615
Question - PVT Limited buys $15,000 of raw materials and inventory from its suppliers, purchasing them on credit, which means that the firm does not have to pay cash immediately at the time of purchase.
-About 17 days later, PVT Limited pays for the materials and inventory.
-After another 15 days, PVT Limited sells the finished products to an automotive manufacturer, but the sale is on credit, meaning that the automotive manufacturer does not pay cash immediately.
-About 30 days after the sale, the automotive manufacturer pays for the product, producing a cash inflow for PVT Limited.
-PVT Limited purchases supplies on terms of net 20 and offers terms of net 30 to its customers.
Required -
i) Compute the operating cycle.
ii) Compute the cash conversion cycle.
iii) Is PVT Limited doing a good job of managing its accounts payable? Why or why not?
iv) Is PVT Limited doing a good job of managing its accounts receivable? Why or why not?
v) Keeping the current operating cycle, under what condition, could PVT Limited have a negative cash conversion cycle?
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