Evaluate income versus expenses

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Reference no: EM132172129

Read through the below post and provide any on of the following: APA format 300 Words.

. Ask a probing question, substantiated with additional background information, evidence or research.

· Share an insight from having read your colleagues' postings, synthesizing the information to provide new perspectives.

· Offer and support an alternative perspective using readings from the classroom or from your own research.

· Validate an idea with your own experience and additional research.

· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

Post

Working Capital Management:

It is a very important aspect of a business to manage its assets and inventory to get a higher return on every dollar invested in the business.

Working capital indicates a company's overall health and it is helpful for its shareholders to decide whether they want to invest in it or not. Company with positive working capital gets more value in its industry.

As per videos we have seen (Link is given by professor) Working capital is required running the daily, weekly and monthly operations of a business. Working capital management brings lots of advantages to the firm and its profitability.

I would like to give an example of Sanofi which has launched recently new flew short vaccine which is seasonal and hence they have planned launched in 1st week of November 2018. To make it in time they have arranged inventory and resources in their Framingham production centers and worked on 24*7 since the beginning of the 3rdquarter of the year 2018.

The Cash Conversion Cycle (CCC):

Cash conversion cycle is nothing, but the companies' liquidity ration and it is very easy to calculate and beneficial to small business. It is highly recommended for any business to have a positive Cash Conversion Cycle ration.

Formula for calculating Cash Conversion Cycle (CCC) = DIO + DSO + DPO

Where DIO stands for Days inventory outstanding

DSO - Days sales outstanding

DPO - Days payable outstanding

Example:

Let's take an example of a Chocolate manufacturing company where inventory should be used within 2-3 days and sales is high during festival season and they must prepare for high demand during Halloween to New year period. Consider they are investing $ 15 in inventory for 1 box of chocolate and selling it at the price of $ 30.

The business has a cash conversion cycle of 10 days it means for those 10 days they have lost $ 15 to purchase inventory and lost $ 30 in sales.

If we consider the pick period for which company is ready with chocolate and selling minimum 8 boxes a day will have a very high cash conversion cycle only for 1 quarter of the year. They must plan their inventory and production to use this cash effectively to survive the whole year.

Cash Budget:

The cash budget is defined as the plan for the company to achieve its financial goals during a particular time frame. It is very helpful for small business to prepare its monthly or quarterly budget for higher returns.

Cash budget holds an important because it helps to evaluate income versus expenses.

Reference:

1. Vaccines - Sanofi. (n.d.).

2. (Investopedia, 2018) Cash Conversion Cycle

3. Liquidity Measurement Ratios: Cash Conversion Cycle. (2018, March 20).

4. Cash Conversion Cycle | Analysis | Formula | Example. (n.d.).

5. (Investopedia, 2018) Cash Budget

Reference no: EM132172129

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