Inventory conversion period and payables deferral period

Assignment Help Financial Management

Reference no: EM13911462

1) Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?

a. Inventory and accounts payable are carried at cost on the balance sheet, whereas accounts receivable are recorded at the price at which goods are sold.

b. Current assets should be divided by sales, but current liabilities should be divided by the COGS.

2) Is there generally a positive or negative relationship between net working capital and the cash conversion cycle? (In other words, if a firm has a high level of net working capital, is it likely to have a high or low cash conversion cycle?)

a. There is a negative relationship between net working capital and the cash conversion cycle

b. There is a positive relationship between net working capital and the cash conversion cycle.

Reference no: EM13911462

Questions Cloud

What is the YTM of the convertible mortgage : Bob is considering acquiring a commercial property for $100,000. He expects the property will generate NOIs of $10,000 in year 1, $11,000 in year 2, $12,000 in year 3 and $12,500 in year 4. He wants you to do a three-year cash flow simulation. At the..

What is their current ratio : Food Products, Inc. has cash of $2 million, short-term investments of $3 million, accounts receivable of $4 million, inventory of $5 million and plant, property, and equipment of $ $6 million. It’s current liabilities = $10 million and it’s total lia..

Using the present worth on incremental investment : It is estimated that the annual heat-loss cost in a small power plant is $5,200. Two mutually exclusive proposals have been formulated that will reduce the loss. If the interest rate is 8% and the plant will benefit from the reduction in heat loss fo..

Inventory conversion period and payables deferral period : Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?

Global stock markets are intertwined : It is said that global stock markets are intertwined/connected and that market performance in one part of the world could have fundamental impacts or influences on the markets in other parts of the world (contagion). This phenomenon was recently exhi..

Treasury stock transactions : Treasury stock transactions. On January 1, 2013, Metco, Inc., reported 622,100 shares of $3 par value common stock as being issued and outstanding.

The expected return on the portfolio : You own a portfolio that is 33 percent invested in Stock X, 48 percent in Stock Y, and 19 percent in Stock Z. The expected returns on these three stocks are 9 percent, 12 percent, and 14 percent, respectively. What is the expected return on the portf..

Initial cost of the project including the flotation costs : Joe's Legal Services is raising capital to open a new law office in northern Illinois. The project has an initial start up cost of $1,448,289. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotat..

User Account

All Pages