Reference no: EM132743154

WORKING CAPITAL MANAGEMENT

Question 1. Why cash management is important for businesses?

Question 2. Given the data below:

Sales                                    RM 15,000

COGS                                            9,000

Purchases                                 10,000

Account receivable                   5,000

Account payable                       2,000

Average inventory                    1,500

Calculate the operating cycle and cash conversion cycle (Note: use 360-days year).

Question 3. Metal Supplies is concerned about its cash management. On average, the day's sales in inventory (duration of inventory on shelf) is 90 days. Account receivables are collected in 90 days, while account payable are paid in 60 days. Metal Supplies has annual sales of RM14 million; cost of goods sold total RM9.5 million, and purchases are RM5 million. (Note: Use a 365-day year)
i. Calculate Metal Supplies' operating cycle.
ii. What is Metal Supplies' cash conversion cycle?
iii. Calculate the amount of resources needed to support Metal Supplies' cash conversion cycle.
iv. Discuss how Metal Supplies might be able to reduce its cash conversion cycle.

Question 4. Nature Resort Company has the following cash planning for 2020:
i. Purchase of raw materials is done on 1st June and the payment will be done in 40 days.
ii. On August 1st, the goods will be sold with the credit term of 3/10 net 30. The customer will normally pay at the end of the credit term.
iii. The annual cash outlay for Nature Resort Company is RM2 million.

Determine the operating cycle, cash cycle, cash turnover and minimum operating cash for Nature Resort Company. (Note: Use a 365-day year)