What is the cash conversion cycle (CCC)? Whyis it better, other things held constant, to have a shorter rather than a longer CCC? Suppose youknow a company’s annual sales, average inventories, average accounts receivable, average accountspayable, and annual cost of goods sold. How couldyou use that information to determine the company’s CCC? If you also knew its cost of capital, howcould you determine its annual cost of carryingworking capital? How could you determine howmuch the company would save if it could reducethe CCC by, say, 5 days? What are some actions itmight take to reduce the CCC?
What is the cash conversion cycle (CCC)? Whyis it better, other things held constant, to have a shorter rather than a longer CCC? Suppose youknow a company’s annual sales, average inventories, average accounts receivable, average accountspayable, and annual cost of goods sold. How couldyou use that information to determine the company’s CCC? If you also knew its cost of capital, howcould you determine its annual cost of carryingworking capital? How could you determine howmuch the company would save if it could reducethe CCC by, say, 5 days? What are some actions itmight take to reduce the CCC?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
What is the cash conversion cycle (CCC)? Why
is it better, other things held constant, to have a shorter rather than a longer CCC? Suppose you
know a company’s annual sales, average inventories, average
payable, and annual cost of goods sold. How could
you use that information to determine the company’s CCC? If you also knew its cost of capital, how
could you determine its annual cost of carrying
much the company would save if it could reduce
the CCC by, say, 5 days? What are some actions it
might take to reduce the CCC?
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