ORIE 350 lecture 15

ORIE 350 lecture 15 - ORIE 350 lecture 15 Cash cycle...

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ORIE 350 lecture 15 Cash cycle Unfavourable cash cycle n u = number of unfavourable days in the cash cycle. Usually the company will need to borrow money difference between collection of accounts receivable and accounts payable why unfavourable? Pay for merchandise before collecting the cash favourable cash cycle n f = number of favourable days in the cash cycle accounts payable is longer than accounts receivable This cash can be used to expand the business How do I get to the favourable 1. Decrease inventory a. Pro- this does improve the cash cycle b. Con- stockouts occur more often 2. Decrease accounts receivable a. Also help the cycle b. Lose sales from customers who cannot pay cash 3. Stretch out accounts payable a. Hinges on supply Calculations Mixture of balance sheet and income statement items I. Inventory a. Becomes cost of goods sold on income statement b. What is inventory over the period? Use the average of the beginning and ending inventory c. Inventory turnover= [Cost of goods sold]/ average inventory
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d. Inventory days= 365/ inventory turnover
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This note was uploaded on 03/30/2008 for the course ORIE 350 taught by Professor Callister during the Spring '08 term at Cornell.

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ORIE 350 lecture 15 - ORIE 350 lecture 15 Cash cycle...

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