Cash operating cycle - CM
Kelly7
Well-KnownPosts: 218Registered
Hi guys
Wondered if anyone knew how to work out the answer to this type of question. It has come up twice on the practise assessments and I have got it wrong both times...
Identify the impact on the cash operating cycle if:
the average inventory holding period decreases by 5 days
the number of days taken to pay trade payables increases by 9 days
the average holding period decreases by 5 days and the number of days taken to pay trade payables increases by 9 days, the current cash operating cycle of 49 days will (increase / decrease) to _____ days.
I thought to do this I would take 49, minus the 5 days and add the 9 days so I got increase to 53 but the actual answer is decrease to 35.
Be really grateful if anyone can solve this for me.
Thanks in advance.
Kelly
Wondered if anyone knew how to work out the answer to this type of question. It has come up twice on the practise assessments and I have got it wrong both times...
Identify the impact on the cash operating cycle if:
the average inventory holding period decreases by 5 days
the number of days taken to pay trade payables increases by 9 days
the average holding period decreases by 5 days and the number of days taken to pay trade payables increases by 9 days, the current cash operating cycle of 49 days will (increase / decrease) to _____ days.
I thought to do this I would take 49, minus the 5 days and add the 9 days so I got increase to 53 but the actual answer is decrease to 35.
Be really grateful if anyone can solve this for me.
Thanks in advance.
Kelly
Comments
the number of days taken to pay trade payables increases by 9 days - this decreases the cycle by 9 days
So 49 -5-9 = 35
Remember trade payables is a minus value when you work out the cycle. So if your minus value is 9 days more then you should be taking off another 9
A very long period to pay suppliers could lead to a nil cycle.
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