Cash Conversion Cycle, Finance, Other Engineering

Assignment Help:
The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardly find a business firm which does not require any amount of working capital, indeed firms differ in their requirements of the working capital.

We know that a firm should aim at maximizing the wealth of its shareholders. In its endeavour to do so, a firm should earn sufficient return from its operations. Earnings a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash.

There is a difference between current and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investment in fixed assets such as plant and machinery or land and buildings. On the contrary, investment in current assets such as inventories and debtors (accounts receivable) is realized during the firm’s operating cycle that is usually less than a year what is an operating cycle?

Operating cycle is the time duration required to convert sales, after the conversion of resources inventories, into cash. The operating cycle of a manufacturing company involves three phases:

1. Acquisition of resources such as raw material, labour power and fuel etc.

2. Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods.

3. Sale of the product either for cash or on credit. Credit sales create account receivable for collection.

Related Discussions:- Cash Conversion Cycle, Finance

Choked nozzle and thrust correction - turbojet, Choked Nozzle Consideri...

Choked Nozzle Considering the formula for thrust under "choked" nozzle conditions: Thrust =(P-P 0 )A + WV j /g     Where: P = Pressure P = Ambien

Numerical methods, Numerical solutions to equations: Many practical p...

Numerical solutions to equations: Many practical problems in engineering involve complex boundary conditions and variable properties that cannot be solved analytically, creat

Sprag clutch - aircraft engine, Sprag Clutch : Sprag clutches are used ...

Sprag Clutch : Sprag clutches are used to provide the disconnect mechanism between the starter motor and the engine. The clutch will transmit drive from the starter motor, but

Removing aircraft engines, Removing Aircraft Engines: To prepare an air...

Removing Aircraft Engines: To prepare an aircraft for engine removal, check that the aircraft weight and balance will not be adversely effected when the engine is removed. Mos

Guidance laws , The guidance law is used to generate a requirement (usually...

The guidance law is used to generate a requirement (usually an required acceleration) that will achieve the guidance objective. In this course, we will look at three main types

Software engineering, analyse modelling for safe home security system

analyse modelling for safe home security system

Balanced mutual fund, Balanced Mutual Fund The mutual fund that objective i...

Balanced Mutual Fund The mutual fund that objective is a balance of stocks & bonds. Balanced funds refer to be less volatile than stock only funds. The return or principal value of

Construction and working of electron microscope, Electron Microscope Th...

Electron Microscope The development of the electron microscope was based on theoretical work done by Louis De Broglie, who found that wavelength is inversely proportional to mo

Plane transmission diffraction grating, A diffraction grating is an optical...

A diffraction grating is an optical element that diffracts light into its constituent wavelength (colors). It is an excellent device used in laboratory to study the spectra. Co

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd